# BOK FINANCIAL CORP (BOKF) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BOK FINANCIAL CORP's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/875357/000087535723000009/bokf-20221231.htm
Accession: 0000875357-23-000009
Filing date: 2023-03-01
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BOKF/
All MD&A years: /company/BOKF/mda/
Previous year: /company/BOKF/mda/fy2021/ (FY 2021)
Next year: /company/BOKF/mda/fy2023/ (FY 2023)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

[[GREPCENT_TABLE]]
[["Table 1 \u2013 Consolidated Selected Financial Data"],["","December 31,"],["","2022","","2021","","2020"],["Selected Financial Data"],["Earnings per share (based on average equivalent shares):"],["Basic","$","7.68","","","$","8.95","","","$","6.19"],["Diluted","7.68","","","8.95","","","6.19"],["Percentages (based on daily averages):"],["Return on average assets","1.11","%","","1.23","%","","0.89","%"],["Return on average shareholders' equity","10.81","%","","11.59","%","","8.55","%"],["Dividend payout ratio","27.65","%","","23.29","%","","33.04","%"],["Allowance for loan losses to loans, excluding PPP loans1","1.05","%","","1.29","%","","1.82","%"],["Combined allowance for credit losses to loans, excluding PPP loans1,2","1.32","%","","1.45","%","","2.00","%"]]
[[/GREPCENT_TABLE]]

1    Metric meaningful due to the U.S. government agency guarantee and short-term nature of the Paycheck Protection Program ("PPP") loans.

2    Includes allowance for loan losses and accrual for off-balance sheet credit risk.

Management’s Assessment of Operations and Financial Condition

Overview

The following discussion is management's analysis to assist in the understanding and evaluation of the financial condition and results of operations of BOK Financial Corporation ("BOK Financial" or "the Company"). This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes and selected financial data presented elsewhere in this report. This section and other sections provide information about our recent financial performance. For information about results of operations for 2021 compared with 2020, see the respective sections in Management's Discussion and Analysis included in our 2021 Form 10-K filed February 23, 2022.

Economic conditions have been volatile in 2022 with soaring inflation, fluctuating oil prices caused by the Russia-Ukraine conflict and the lingering effects of the COVID-19 pandemic. In order to combat rising inflation, the Federal Reserve began increasing the Federal Funds rate in March and continued to do so through the end of the year for a total 425 basis point increase. Consumer spending has remained high through 2022, and unemployment remains low at 3.5% for December 2022. See "Summary of Credit Loss Experience" section of Management's Discussion and Analysis for additional discussion around our economic forecast.

21

Performance Summary

Net income for the year ended December 31, 2022 totaled $520.3 million or $7.68 per diluted share compared with net income of $618.1 million or $8.95 per diluted share for the year ended December 31, 2021. Pre-provision net revenue ("PPNR"), a non-GAAP measure, was $690.1 million for 2022 compared to $697.9 million in the prior year.

Highlights of 2022 included:

•Net interest revenue totaled $1.2 billion for 2022, an increase of $93.3 million over the prior year. Net interest margin was 2.98% for 2022 compared to 2.60% for 2021. In response to rising inflation, the Federal Reserve increased the federal funds rate 425 basis points since the beginning of the year. The resulting impact on market interest rates has increased net interest margin as our earning assets, led by our significant percentage of variable-rate commercial loans, reprice at a higher rate and faster pace than our interest-bearing liabilities. Average earning assets were $40.1 billion for 2022, down $3.7 billion compared to 2021, largely due to decreased trading securities.

•Fees and commissions revenue was $657.2 million for 2022, a decrease of $11.1 million compared to 2021. Mortgage banking revenue decreased $56.5 million due to a decrease in mortgage production volume caused by rising mortgage interest rates and continued housing inventory shortages. Other revenue decreased $14.3 million, primarily due to lower production revenue on repossessed oil and gas properties sold in 2021. Brokerage and trading revenues grew $28.0 million, largely due to increased customer hedging and investment banking revenues. Fiduciary and asset management revenue increased $18.1 million with growth in mutual fund fees and decreased fee waivers.

•Other gains and losses, net decreased $63.6 million due to sales of an alternative investment and repossessed assets in the prior year.

•Other operating expense totaled $1.2 billion, a $13.2 million decrease compared to 2021. Personnel expense decreased $24.5 million, primarily driven by lower incentive compensation costs, partially offset by higher regular compensation. Non-personnel expense increased $11.2 million, largely due to additional business promotion fees, project-related data processing and communications and professional fees. These were partially offset by lower mortgage banking costs and expenses on repossessed assets.

•The net economic cost of the changes in the fair value of mortgage servicing rights and related economic hedges was $12.5 million during 2022 compared to an economic benefit of $21.0 million during 2021 due to increased market volatility throughout 2022.

•We recorded a $30.0 million provision for expected credit losses in 2022, primarily due to strong growth in loans and loan commitments, partially offset by improvement in credit quality metrics. The uncertainty in our economic forecast increased and some key economic factors were less favorable to growth across all scenarios. A negative $100.0 million provision for expected credit losses was recorded in 2021. The combined allowance for credit losses totaled $296.6 million or 1.31% of outstanding loans at December 31, 2022. The combined allowance for credit losses was $289.4 million or 1.43% of outstanding loans at December 31, 2021.

•Nonperforming assets not guaranteed by U.S. government agencies decreased $23.7 million compared to December 31, 2021. Potential problem loans decreased $128 million and other loans especially mentioned increased $5.5 million. Net charge-offs were $21.1 million or 0.10% of average loans in 2022. Net loans charged-off were $37.0 million or 0.17% of average loans in 2021.

•Period-end outstanding loan balances increased $2.4 billion to $22.6 billion at December 31, 2022. Of this increase, commercial loans increased $1.7 billion, commercial real estate loans increased $775 million, and loans to individuals grew by $146 million. Paycheck Protection Program loans decreased $262 million. Average outstanding loan balances were $21.3 billion, a $216 million decrease.

•Average deposits decreased $70 million to $37.9 billion and period-end deposits decreased $6.8 billion to $34.5 billion, primarily driven by institutional clients moving to off-balance sheet alternatives seeking higher yields.

•The Company's common equity Tier 1 capital ratio was 11.69% at December 31, 2022. In addition, the Tier 1 capital ratio was 11.71%, total capital ratio was 12.67% and leverage ratio was 9.91% at December 31, 2022. At December 31, 2021, the Tier 1 capital ratio was 12.25%, the total capital ratio was 13.29% and the leverage ratio was 8.55%.

•The Company repurchased 1,632,401 common shares at an average price of $94.88 per share during 2022 and 1,359,657 common shares at an average price of $86.74 during 2021.

22

•The Company paid cash dividends of $2.13 per common share during 2022 and $2.09 per common share in 2021.

Net income for the fourth quarter of 2022 totaled $168.4 million or $2.51 per diluted share, compared to $156.5 million or $2.32 per diluted share for the third quarter of 2022.

Highlights of the fourth quarter of 2022 included:

•Net interest revenue totaled $352.6 million for the fourth quarter of 2022, an increase of $36.3 million compared to the prior quarter. Net interest margin was 3.54% compared to 3.24%. In response to rising inflation, the Federal Reserve increased the federal funds rate another 125 basis points in the fourth quarter. The resulting impact on market interest rates increased our net interest margin.

•Fees and commissions revenue was relatively consistent with the prior quarter at $193.6 million. Increased brokerage and trading revenue, transaction card revenue, and other revenue was offset by lower revenue from mortgage banking and deposit service charges.

•Operating expense increased $23.7 million to $318.5 million. Personnel expense increased $16.1 million, largely driven by higher incentive compensation expense. Non-personnel expense increased $7.6 million, primarily related to project-related professional fees and data processing and communications costs.

•We recorded a $15.0 million provision for expected credit losses in the fourth quarter of 2022, primarily due to strong growth in loans and loan commitments. The level of uncertainty in the economic outlook remained high and key economic factors in the base case were slightly less favorable to economic growth. We also recorded a $15.0 million provision for expected credit losses in the third quarter of 2022, primarily as a result of growth in loans and loan commitments during the quarter.

23

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. 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 addresses the most critical areas where these assumptions and estimates could affect the financial condition, results of operations and cash flows of the Company. These 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. Appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments is determined by a senior management Allowance Committee which requires judgment about effects of uncertain matters, resulting in a subjective calculation which is inherently imprecise. 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.

On January 1, 2020, BOK Financial’s accounting policies 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 were 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 and the probability weight assigned to each economic scenario, and appropriate adjustments.

Significant assumptions and estimates affecting the allowance for loan losses and accrual for off-balance sheet credit risk include:

•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.

•The forecast for each relevant economic loss driver and the probability weighting of economic scenarios are overseen by a senior management Economic Forecast Committee which includes members independent of the allowance process.

•The Allowance Committee may increase or decrease the allowance to reflect risks not captured in the quantitative component. Examples of circumstances that may result in adjustments include, but are not limited to, new lines of business, market conditions that have not been previously encountered, observed changes in credit risk that are not yet reflected in macroeconomic factors, or economic conditions that impact loss given default assumptions.

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.

24

We describe critical elements affecting our estimate of expected credit loss in the "Summary of Credit Loss Experience" section of Management's Discussion and Analysis. While it is challenging to evaluate the allowance impact for a change in a particular input, results of such an analysis demonstrate how the quantitative element of the allowance behaves under different conditions. The sensitivity to management's economic scenario weighting may be quantified by comparing the results of weighting each economic scenario at 100%. For example, compared to a 100% Base Case scenario, a 100% Downside case would result in an additional $117 million in quantitative reserve, while a 100% Upside Case would result in $18 million less in quantitative reserve at December 31, 2022. Such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including (1) management's weighting of multiple forecasted economic scenarios in estimating expected credit losses; (2) management's predictions of future economic trends and relationships among the scenarios may differ from actual events; and (3) management's application of subjective measures to modeled results when appropriate.

Fair Value Measurement

Certain assets and liabilities are recorded at fair value in the Consolidated Financial Statements. 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 markets 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.

A hierarchy for fair value has been established that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories: unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), other observable inputs that can be observed either directly or indirectly (Level 2) and unobservable inputs for assets or liabilities (Level 3). Fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring basis. Fair value measurements of significant assets or liabilities that are based on unobservable inputs (Level 3) are considered Critical Accounting Policies and Estimates. Additional discussion of fair value measurement and disclosure is included in Notes 7 and 19 of the Consolidated Financial Statements.

Mortgage Servicing Rights

We have a significant investment in mortgage servicing rights ("MSRs"). Our MSRs are primarily retained from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent lenders. MSRs may be purchased from other lenders. Both originated and purchased MSRs are initially recognized at fair value. We carry all MSRs at fair value. Changes in fair value are recognized in earnings as they occur.

MSRs are not traded in active markets. The fair value of MSRs is determined by discounting the projected cash flows. Certain significant assumptions and estimates used in valuing MSRs are based on current market sources including projected prepayment speeds, assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates. Assumptions used to value our MSRs are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to value this asset. 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 our servicing portfolio. The discount rate is based on benchmark rates for mortgage loans plus a market spread expected by investors in servicing rights. Significant assumptions used to determine the fair value of our MSRs are presented in Note 7 to the Consolidated Financial Statements. At least quarterly, we request estimates of fair value from outside sources to corroborate the results of the valuation model.

The assumptions used in this model are primarily based on mortgage interest rates. Evaluation of the effect of a change in one assumption without considering the effect of that change on other assumptions is not meaningful. Considering all related assumptions, we expect a 50 basis point increase in primary mortgage interest rates to increase the fair value of our servicing rights by $6.1 million. We expect an $8.2 million decrease in the fair value of our MSRs from a 50 basis point decrease in primary mortgage interest rates.

25

Results of Operations

Net Interest Revenue and Net Interest Margin

2022 Net Interest Revenue

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 $1.2 billion for 2022, an increase of $92.9 million over the prior year. This includes $7.3 million of PPP loan fees for 2022 and $42.7 million for 2021. Net interest revenue increased $100.8 million due to changes in interest rates and decreased $7.9 million from a decrease in earning assets, partially offset by a decrease in interest-bearing liabilities. Table 3 shows the effects on net interest revenue due to changes in average balances and interest rates for the various types of earning assets and interest-bearing liabilities. In addition, see the Annual Financial Summary of consolidated daily average balances, yields and rates as shown in Table 2.

Net interest margin was 2.98% for 2022 and 2.60% for 2021. The tax-equivalent yield on earning assets was 3.42% for 2022 compared to 2.74% in 2021. During 2022, the Federal Reserve increased the federal funds rate 425 basis points in response to rising inflation. The resulting impact on market interest rates has increased net interest margin as our earning assets, led by our significant percentage of variable-rate commercial loans, reprice at a higher rate and faster pace than our interest-bearing liabilities. Loan yields increased 100 basis points to 4.62%. The available for sale securities portfolio yield increased 27 basis points to 2.07%. The yield on trading securities grew 26 basis points to 2.24% and the yield on interest-bearing cash and cash equivalents increased 131 basis points to 1.44%.

Funding costs increased 49 basis points compared to 2021. The cost of interest-bearing deposits increased 39 basis points. The cost of other short-term borrowings increased 144 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 26 basis points for 2022, up from 7 basis points for 2021.

Average earning assets for 2022 decreased $3.7 billion or 9% compared 2021. Average trading securities balances decreased $3.1 billion in response to lower origination volumes in the residential mortgage industry driven by increases in mortgage interest rates. The average balance of available for sale securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government agencies, decreased $1.7 billion, while investment securities increased $1.3 billion. In the second quarter 2022, we transferred $2.4 billion of U.S. government agency mortgage-backed securities from available for sale to the investment securities portfolio to limit the effect of future rate increases on the tangible common equity ratio. Average loans, net of allowance for loan losses, decreased $136 million.

Total average deposits decreased $70 million compared to the prior year. Average interest-bearing transaction account balances decreased $1.1 billion while average demand deposit balances increased $1.4 billion. Average time deposits also decreased $430 million. Average short-term borrowings decreased $1.9 billion.

Our overall objective is to manage the Company's balance sheet in such a way as to limit exposure to changes in interest rates. These strategies are further described in the Market Risk section of this report. Approximately 79% of our commercial and commercial real estate loan portfolios are either variable rate loans or fixed rate loans 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 3 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

26

Table 2 - Annual Financial Summary

Consolidated Daily Average Balances, Average Yields and Rates

[[GREPCENT_TABLE]]
[["(Dollars in thousands, except per share data)","","Year Ended"],["","","December 31, 2022"],["","","Average Balance","","Revenue/ Expense","","Yield/ Rate"],["Assets"],["Interest-bearing cash and cash equivalents","","$","801,180","","","$","11,552","","","1.44","%"],["Trading securities","","4,723,130","","","115,295","","","2.24","%"],["Investment securities","","1,493,322","","","24,490","","","1.64","%"],["Available for sale securities","","11,643,103","","","249,361","","","2.07","%"],["Fair value option securities","","64,776","","","2,145","","","3.40","%"],["Restricted equity securities","","180,760","","","8,282","","","4.58","%"],["Residential mortgage loans held for sale","","139,553","","","6,027","","","4.31","%"],["Loans","","21,279,187","","","983,413","","","4.62","%"],["Allowance for loan losses","","(245,915)"],["Loans, net of allowance","","21,033,272","","","983,413","","","4.68","%"],["Total earning assets","","40,079,096","","","1,400,565","","","3.42","%"],["Receivable on unsettled securities sales","","310,974"],["Cash and other assets","","6,634,566"],["Total assets","","$","47,024,636"],["Liabilities and equity"],["Interest-bearing deposits:"],["Transaction","","$","20,550,624","","","$","108,956","","","0.53","%"],["Savings","","969,279","","","489","","","0.05","%"],["Time","","1,446,613","","","12,304","","","0.85","%"],["Total interest-bearing deposits","","22,966,516","","","121,749","","","0.53","%"],["Funds purchased and repurchase agreements","","1,265,045","","","13,158","","","1.04","%"],["Other borrowings","","1,628,972","","","39,325","","","2.41","%"],["Subordinated debentures","","131,206","","","6,490","","","4.95","%"],["Total interest-bearing liabilities","","25,991,739","","","180,722","","","0.70","%"],["Non-interest bearing demand deposits","","14,884,765"],["Due on unsettled securities purchases","","451,530"],["Other liabilities","","879,691"],["Total equity","","4,816,911"],["Total liabilities and equity","","$","47,024,636"],["Tax-equivalent net interest revenue","","","","$","1,219,843","","","2.72","%"],["Tax-equivalent net interest revenue to earning assets","","","","","","2.98","%"],["Less tax-equivalent adjustment","","","","8,463"],["Net interest revenue","","","","1,211,380"],["Provision for credit losses","","","","30,000"],["Other operating revenue","","","","643,257"],["Other operating expense","","","","1,164,480"],["Net income before taxes","","","","660,157"],["Federal and state income taxes","","","","139,864"],["Net income","","","","520,293"],["Net income attributable to non-controlling interests","","","","20"],["Net income attributable to BOK Financial Corporation shareholders","","","","$","520,273"],["Earnings Per Average Common Share Equivalent:"],["Net income:"],["Basic","","","","$","7.68"],["Diluted","","","","$","7.68"]]
[[/GREPCENT_TABLE]]

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.

27

Table 2 - Annual Financial Summary (continued)

Consolidated Daily Average Balances, Average Yields and Rates

[[GREPCENT_TABLE]]
[["(Dollars in thousands, Except Per Share Data)","","Year Ended"],["","","December 31, 2021","","December 31, 2020"],["","","Average Balance","","Revenue/ Expense","","Yield/ Rate","","Average Balance","","Revenue/ Expense","","Yield/ Rate"],["Assets"],["Interest-bearing cash and cash equivalents","","$","816,425","","","$","1,060","","","0.13","%","","$","634,401","","","$","2,830","","","0.45","%"],["Trading securities","","7,823,705","","","156,214","","","1.98","%","","3,078,075","","","67,942","","","2.75","%"],["Investment securities","","222,426","","","11,065","","","4.97","%","","265,455","","","12,760","","","4.81","%"],["Available for sale securities","","13,342,526","","","230,698","","","1.80","%","","12,420,678","","","261,404","","","2.21","%"],["Fair value option securities","","67,881","","","1,542","","","2.38","%","","769,760","","","18,475","","","2.39","%"],["Restricted equity securities","","195,488","","","5,703","","","2.92","%","","281,594","","","10,963","","","3.89","%"],["Residential mortgage loans held for sale","","188,888","","","5,465","","","2.93","%","","215,296","","","6,397","","","3.05","%"],["Loans","","21,495,156","","","777,124","","","3.62","%","","23,402,195","","","898,445","","","3.84","%"],["Allowance for loan losses","","(326,121)","","","","","","","(368,820)"],["Loans, net of allowance","","21,169,035","","","777,124","","","3.67","%","","23,033,375","","","898,445","","","3.90","%"],["Total earning assets","","43,826,374","","","1,188,871","","","2.74","%","","40,698,634","","","1,279,216","","","3.24","%"],["Receivable on unsettled securities sales","","667,149","","","","","","","3,329,727"],["Cash and other assets","","5,658,180","","","","","","","4,676,029"],["Total assets","","$","50,151,703","","","","","","","$","48,704,390"],["Liabilities and equity"],["Interest-bearing deposits:"],["Transaction","","$","21,673,472","","","$","21,961","","","0.10","%","","$","18,676,146","","","$","60,424","","","0.32","%"],["Savings","","865,245","","","374","","","0.04","%","","666,549","","","385","","","0.06","%"],["Time","","1,876,901","","","11,149","","","0.59","%","","2,220,749","","","29,187","","","1.31","%"],["Total interest-bearing deposits","","24,415,618","","","33,484","","","0.14","%","","21,563,444","","","89,996","","","0.42","%"],["Funds purchased and repurchase agreements","","2,238,702","","","8,084","","","0.36","%","","3,635,541","","","15,605","","","0.43","%"],["Other borrowings","","2,599,861","","","9,793","","","0.38","%","","4,659,453","","","41,011","","","0.88","%"],["Subordinated debentures","","224,058","","","10,535","","","4.70","%","","275,965","","","13,944","","","5.05","%"],["Total interest-bearing liabilities","","29,478,239","","","61,896","","","0.21","%","","30,134,403","","","160,556","","","0.53","%"],["Non-interest bearing demand deposits","","13,505,359","","","","","","","11,201,554"],["Due on unsettled securities purchases","","800,667","","","","","","","1,081,674"],["Other liabilities","","1,013,050","","","","","","","1,193,445"],["Total equity","","5,354,388","","","","","","","5,093,314"],["Total liabilities and equity","","$","50,151,703","","","","","","","$","48,704,390"],["Tax-equivalent net interest revenue","","","","$","1,126,975","","","2.53","%","","","","$","1,118,660","","","2.71","%"],["Tax-equivalent net interest revenue to earning assets","","","","","","2.60","%","","","","","","2.83","%"],["Less tax-equivalent adjustment","","","","8,942","","","","","","","10,216"],["Net interest revenue","","","","1,118,033","","","","","","","1,108,444"],["Provision for credit losses","","","","(100,000)","","","","","","","222,592"],["Other operating revenue","","","","755,775","","","","","","","842,320"],["Other operating expense","","","","1,177,708","","","","","","","1,164,308"],["Net income before taxes","","","","796,100","","","","","","","563,864"],["Federal and state income taxes","","","","179,775","","","","","","","128,793"],["Net income","","","","616,325","","","","","","","435,071"],["Net income (loss) attributable to non-controlling interests","","","","(1,796)","","","","","","","41"],["Net income attributable to BOK Financial Corporation shareholders","","","","$","618,121","","","","","","","$","435,030"],["Earnings Per Average Common Share Equivalent:"],["Net income:"],["Basic","","","","$","8.95","","","","","","","$","6.19"],["Diluted","","","","$","8.95","","","","","","","$","6.19"]]
[[/GREPCENT_TABLE]]

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Table 3 – Annual Volume/Rate Analysis

(In thousands)

[[GREPCENT_TABLE]]
[["","","Year Ended","","Year Ended"],["","","December 31, 2022 / 2021","","December 31, 2021 / 2020"],["","","","","Change Due To1","","","","Change Due To1"],["","","Change","","Volume","","Yield / Rate","","Change","","Volume","","Yield / Rate"],["Tax-equivalent interest revenue:"],["Interest-bearing cash and cash equivalents","","$","10,492","","","$","(111)","","","$","10,603","","","$","(1,770)","","","$","540","","","$","(2,310)"],["Trading securities","","(40,919)","","","(58,095)","","","17,176","","","88,272","","","128,039","","","(39,767)"],["Investment securities","","13,425","","","43,575","","","(30,150)","","","(1,695)","","","(2,018)","","","323"],["Available for sale securities","","18,663","","","(14,377)","","","33,040","","","(30,706)","","","20,115","","","(50,821)"],["Fair value option securities","","603","","","(50)","","","653","","","(16,933)","","","(16,899)","","","(34)"],["Restricted equity securities","","2,579","","","(476)","","","3,055","","","(5,260)","","","(3,286)","","","(1,974)"],["Residential mortgage loans held for sale","","562","","","(1,696)","","","2,258","","","(932)","","","(694)","","","(238)"],["Loans","","206,289","","","(8,240)","","","214,529","","","(121,321)","","","(71,533)","","","(49,788)"],["Total tax-equivalent interest revenue","","211,694","","","(39,470)","","","251,164","","","(90,345)","","","54,264","","","(144,609)"],["Interest expense:"],["Transaction deposits","","86,995","","","(3,662)","","","90,657","","","(38,463)","","","6,108","","","(44,571)"],["Savings deposits","","115","","","35","","","80","","","(11)","","","121","","","(132)"],["Time deposits","","1,155","","","(3,132)","","","4,287","","","(18,038)","","","(3,277)","","","(14,761)"],["Funds purchased and repurchase agreements","","5,074","","","(6,827)","","","11,901","","","(7,521)","","","(5,491)","","","(2,030)"],["Other borrowings","","29,532","","","(13,467)","","","42,999","","","(31,218)","","","(13,023)","","","(18,195)"],["Subordinated debentures","","(4,045)","","","(4,485)","","","440","","","(3,409)","","","(2,532)","","","(877)"],["Total interest expense","","118,826","","","(31,538)","","","150,364","","","(98,660)","","","(18,094)","","","(80,566)"],["Tax-equivalent net interest revenue","","92,868","","","(7,932)","","","100,800","","","8,315","","","72,358","","","(64,043)"],["Change in tax-equivalent adjustment","","(479)","","","","","","","(1,274)"],["Net interest revenue","","$","93,347","","","","","","","$","9,589"]]
[[/GREPCENT_TABLE]]

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

29

Fourth Quarter 2022 Net Interest Revenue

Tax-equivalent net interest revenue totaled $354.9 million for the fourth quarter of 2022, an increase of $36.4 million compared to the third quarter of 2022. The rapid increase in interest rates combined with our strong loan growth and our asset-sensitive position drove a linked quarter increase in net interest revenue and a 30 basis point increase in net interest margin.

Net interest margin was 3.54% for the fourth quarter of 2022 compared to 3.24% for the third quarter of 2022. The Federal Reserve increased the federal funds rate 125 basis points in the fourth quarter in response to rising inflation. The resulting impact on market interest rates increased the net interest margin. The tax-equivalent yield on earning assets was 4.53% for the fourth quarter of 2022, an increase of 82 basis points compared to the third quarter of 2022. Loan yields increased 110 basis points to 5.99%. The yield on trading securities was up 98 basis points to 3.70% while the yield on available for sale securities increased 33 basis points to 2.54%. The yield on interest-bearing cash and cash equivalents increased 219 basis points to 4.06%.

Funding costs increased 81 basis points compared to the third quarter of 2022. The cost of other short-term borrowings increased 171 basis points while the cost of interest-bearing deposits increased 59 basis points. The cost of other borrowings was up 175 basis points to 4.08%. The cost of funds purchased and repurchase agreements increased 133 basis points to 2.05%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 58 basis points in the fourth quarter of 2022 and 29 basis points in the third quarter of 2022.

Average earning assets for the fourth quarter of 2022 increased $757 million over the third quarter of 2022. Average loans, net of allowance for loan losses, increased $375 million, largely due to growth in commercial and commercial real estate loans. Available for sale securities increased $648 million as we repositioned our balance sheet to a more rate-risk neutral position. Average interest bearing cash and cash equivalents decreased $180 million while average trading securities balances decreased $91 million.

Average deposits decreased $1.6 billion compared to the third quarter of 2022 as customers redeploy resources following the savings trend during the height of the COVID-19 pandemic. Average demand deposit balances decreased $929 million. Average interest-bearing transaction accounts decreased $658 million. Other borrowings increased $994 million while funds purchased and repurchase agreements increased $246 million.

30

Table 4 - Quarterly Financial Summary

Consolidated Daily Average Balances, Average Yields and Rates

[[GREPCENT_TABLE]]
[["(In thousands, except per share data)","","Three Months Ended"],["","","December 31, 2022","","September 30, 2022"],["","","Average Balance","","Revenue/ Expense","","Yield/ Rate","","Average Balance","","Revenue/ Expense","","Yield/ Rate"],["Assets"],["Interest-bearing cash and cash equivalents","","$","568,307","","","$","5,822","","","4.06","%","","$","748,263","","","$","3,520","","","1.87","%"],["Trading securities","","3,086,985","","","28,473","","","3.70","%","","3,178,068","","","22,772","","","2.72","%"],["Investment securities","","2,535,305","","","9,223","","","1.46","%","","2,593,989","","","9,207","","","1.42","%"],["Available for sale securities","","10,953,851","","","73,317","","","2.54","%","","10,306,257","","","59,144","","","2.21","%"],["Fair value option securities","","92,012","","","931","","","4.40","%","","36,846","","","286","","","2.98","%"],["Restricted equity securities","","216,673","","","3,088","","","5.70","%","","173,656","","","2,703","","","6.23","%"],["Residential mortgage loans held for sale","","98,613","","","1,390","","","5.56","%","","132,685","","","1,684","","","5.05","%"],["Loans","","21,976,004","","","331,649","","","5.99","%","","21,599,232","","","265,997","","","4.89","%"],["Allowance for loan losses","","(242,450)","","","","","","","(241,136)"],["Loans, net of allowance","","21,733,554","","","331,649","","","6.06","%","","21,358,096","","","265,997","","","4.94","%"],["Total earning assets","","39,285,300","","","453,893","","","4.53","%","","38,527,860","","","365,313","","","3.71","%"],["Receivable on unsettled securities sales","","194,996","","","","","","","219,113"],["Cash and other assets","","5,729,322","","","","","","","6,372,229"],["Total assets","","$","45,209,618","","","","","","","$","45,119,202"],["Liabilities and equity"],["Interest-bearing deposits:"],["Transaction","","$","18,898,315","","","$","60,893","","","1.28","%","","$","19,556,806","","","$","31,266","","","0.63","%"],["Savings","","969,275","","","205","","","0.08","%","","978,596","","","135","","","0.05","%"],["Time","","1,417,606","","","4,476","","","1.25","%","","1,409,069","","","3,314","","","0.93","%"],["Total interest-bearing deposits","","21,285,196","","","65,574","","","1.22","%","","21,944,471","","","34,715","","","0.63","%"],["Funds purchased and repurchase agreements","","1,046,447","","","5,407","","","2.05","%","","800,759","","","1,445","","","0.72","%"],["Other borrowings","","2,523,195","","","25,961","","","4.08","%","","1,528,887","","","8,988","","","2.33","%"],["Subordinated debentures","","131,180","","","2,038","","","6.16","%","","131,199","","","1,677","","","5.07","%"],["Total interest-bearing liabilities","","24,986,018","","","98,980","","","1.57","%","","24,405,316","","","46,825","","","0.76","%"],["Non-interest bearing demand deposits","","14,176,189","","","","","","","15,105,305"],["Due on unsettled securities purchases","","575,957","","","","","","","331,428"],["Other liabilities","","853,134","","","","","","","501,731"],["Total equity","","4,618,320","","","","","","","4,775,422"],["Total liabilities and equity","","$","45,209,618","","","","","","","$","45,119,202"],["Tax-equivalent net interest revenue","","","","$","354,913","","","2.96","%","","","","$","318,488","","","2.95","%"],["Tax-equivalent net interest revenue to earning assets","","","","","","3.54","%","","","","","","3.24","%"],["Less tax-equivalent adjustment","","","","2,287","","","","","","","2,163"],["Net interest revenue","","","","352,626","","","","","","","316,325"],["Provision for credit losses","","","","15,000","","","","","","","15,000"],["Other operating revenue","","","","197,086","","","","","","","189,698"],["Other operating expense","","","","318,456","","","","","","","294,751"],["Net income before taxes","","","","216,256","","","","","","","196,272"],["Federal and state income taxes","","","","47,864","","","","","","","39,681"],["Net income","","","","168,392","","","","","","","156,591"],["Net income (loss) attributable to non-controlling interests","","","","(37)","","","","","","","81"],["Net income attributable to BOK Financial Corp. shareholders","","","","$","168,429","","","","","","","$","156,510"],["Earnings Per Average Common Share Equivalent:"],["Basic","","","","$","2.51","","","","","","","$","2.32"],["Diluted","","","","$","2.51","","","","","","","$","2.32"]]
[[/GREPCENT_TABLE]]

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

31

Table 4 - Quarterly Financial Summary (continued)

Consolidated Daily Average Balances, Average Yields and Rates

[[GREPCENT_TABLE]]
[["Three Months Ended"],["June 30, 2022","","March 31, 2022","","December 31, 2021"],["Average Balance","","Revenue /Expense","","Yield / Rate","","Average Balance","","Revenue / Expense","","Yield / Rate","","Average Balance","","Revenue / Expense","","Yield / Rate"],["$","843,619","","","$","1,737","","","0.83","%","","$","1,050,409","","","$","473","","","0.18","%","","$","1,208,552","","","$","483","","","0.16","%"],["4,166,954","","","23,009","","","2.00","%","","8,537,390","","","41,041","","","1.71","%","","9,260,778","","","44,537","","","1.89","%"],["610,983","","","3,585","","","2.35","%","","195,198","","","2,475","","","5.07","%","","213,188","","","2,661","","","4.99","%"],["12,258,072","","","58,882","","","1.84","%","","13,092,422","","","58,018","","","1.77","%","","13,247,607","","","55,638","","","1.72","%"],["54,832","","","437","","","2.92","%","","75,539","","","491","","","2.81","%","","46,458","","","302","","","2.71","%"],["167,732","","","1,384","","","3.30","%","","164,484","","","1,107","","","2.69","%","","137,874","","","1,028","","","2.98","%"],["148,183","","","1,559","","","4.22","%","","179,697","","","1,394","","","3.11","%","","163,433","","","1,242","","","3.06","%"],["21,057,714","","","205,694","","","3.92","%","","20,463,662","","","180,073","","","3.57","%","","20,242,653","","","188,547","","","3.70","%"],["(246,064)","","","","","","","(254,191)","","","","","","","(271,794)"],["20,811,650","","","205,694","","","3.96","%","","20,209,471","","","180,073","","","3.61","%","","19,970,859","","","188,547","","","3.75","%"],["39,062,025","","","296,287","","","2.96","%","","43,504,610","","","285,072","","","2.58","%","","44,248,749","","","294,438","","","2.66","%"],["457,165","","","","","","","375,616","","","","","","","585,901"],["7,769,208","","","","","","","6,680,848","","","","","","","5,769,406"],["$","47,288,398","","","","","","","$","50,561,074","","","","","","","$","50,604,056"],["$","21,037,294","","","$","11,454","","","0.22","%","","$","22,763,479","","","$","5,343","","","0.10","%","","$","22,326,401","","","$","5,097","","","0.09","%"],["981,493","","","76","","","0.03","%","","947,407","","","73","","","0.03","%","","909,131","","","96","","","0.04","%"],["1,373,036","","","2,332","","","0.68","%","","1,589,039","","","2,182","","","0.56","%","","1,747,715","","","2,351","","","0.53","%"],["23,391,823","","","13,862","","","0.24","%","","25,299,925","","","7,598","","","0.12","%","","24,983,247","","","7,544","","","0.12","%"],["1,224,134","","","1,608","","","0.53","%","","2,004,466","","","4,698","","","0.95","%","","2,893,128","","","5,292","","","0.73","%"],["1,301,358","","","3,286","","","1.01","%","","1,148,440","","","1,090","","","0.38","%","","880,837","","","1,091","","","0.49","%"],["131,219","","","1,473","","","4.50","%","","131,228","","","1,302","","","4.02","%","","131,224","","","1,330","","","4.02","%"],["26,048,534","","","20,229","","","0.31","%","","28,584,059","","","14,688","","","0.21","%","","28,888,436","","","15,257","","","0.21","%"],["15,202,597","","","","","","","15,062,282","","","","","","","14,818,841"],["380,332","","","","","","","519,097","","","","","","","629,642"],["924,605","","","","","","","1,247,785","","","","","","","898,848"],["4,732,330","","","","","","","5,147,851","","","","","","","5,368,289"],["$","47,288,398","","","","","","","$","50,561,074","","","","","","","$","50,604,056"],["","","$","276,058","","","2.65","%","","","","$","270,384","","","2.37","%","","","","$","279,181","","","2.45","%"],["","","","","2.76","%","","","","","","2.44","%","","","","","","2.52","%"],["","","2,040","","","","","","","1,973","","","","","","","2,104"],["","","274,018","","","","","","","268,411","","","","","","","277,077"],["","","\u2014","","","","","","","\u2014","","","","","","","(17,000)"],["","","168,617","","","","","","","87,856","","","","","","","157,443"],["","","273,655","","","","","","","277,618","","","","","","","299,495"],["","","168,980","","","","","","","78,649","","","","","","","152,025"],["","","36,122","","","","","","","16,197","","","","","","","34,836"],["","","132,858","","","","","","","62,452","","","","","","","117,189"],["","","12","","","","","","","(36)","","","","","","","(129)"],["","","$","132,846","","","","","","","$","62,488","","","","","","","$","117,318"],["","","$","1.96","","","","","","","$","0.91","","","","","","","$","1.71"],["","","$","1.96","","","","","","","$","0.91","","","","","","","$","1.71"]]
[[/GREPCENT_TABLE]]

32

Table 5 – Quarterly Volume/Rate Analysis

(In thousands)

[[GREPCENT_TABLE]]
[["","","Three Months Ended"],["","","Dec. 31, 2022 / Sep. 30, 2022"],["","","","","Change Due To1"],["","","Change","","Volume","","Yield / Rate"],["Tax-equivalent interest revenue:"],["Interest-bearing cash and cash equivalents","","$","2,302","","","$","(1,338)","","","$","3,640"],["Trading securities","","5,701","","","(2,207)","","","7,908"],["Investment securities","","16","","","(230)","","","246"],["Available for sale securities","","14,173","","","5,012","","","9,161"],["Fair value option securities","","645","","","427","","","218"],["Restricted equity securities","","385","","","619","","","(234)"],["Residential mortgage loans held for sale","","(294)","","","(445)","","","151"],["Loans","","65,652","","","5,205","","","60,447"],["Total tax-equivalent interest revenue","","88,580","","","7,043","","","81,537"],["Interest expense:"],["Transaction deposits","","29,627","","","(1,730)","","","31,357"],["Savings deposits","","70","","","(3)","","","73"],["Time deposits","","1,162","","","23","","","1,139"],["Funds purchased and repurchase agreements","","3,962","","","862","","","3,100"],["Other borrowings","","16,973","","","8,034","","","8,939"],["Subordinated debentures","","361","","","\u2014","","","361"],["Total interest expense","","52,155","","","7,186","","","44,969"],["Tax-equivalent net interest revenue","","36,425","","","(143)","","","36,568"],["Change in tax-equivalent adjustment","","124"],["Net interest revenue","","$","36,301"]]
[[/GREPCENT_TABLE]]

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

33

Other Operating Revenue

2022 Other Operating Revenue

Other operating revenue was $643.3 million for 2022, a decrease of $112.5 million or 15% compared to 2021. A decline in mortgage banking revenue and other gains, net was partially offset by increased brokerage and trading revenue and fiduciary and asset management revenue.

Table 6 – Other Operating Revenue 

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2022vs.2021","","2022vs.2021","","Year Ended December 31,","","2021 vs. 2020","","2021 vs. 2020"],["","2022","","2021","","Increase (Decrease)","","% Increase (Decrease)","","2020","","Increase (Decrease)","","% Increase (Decrease)"],["Brokerage and trading revenue","$","140,978","","","$","112,989","","","$","27,989","","","25","%","","$","221,833","","","$","(108,844)","","","(49)","%"],["Transaction card revenue","104,266","","","96,983","","","7,283","","","8","%","","90,182","","","6,801","","","8","%"],["Fiduciary and asset management revenue","196,326","","","178,274","","","18,052","","","10","%","","167,445","","","10,829","","","6","%"],["Deposit service charges and fees","110,636","","","104,217","","","6,419","","","6","%","","96,805","","","7,412","","","8","%"],["Mortgage banking revenue","49,365","","","105,896","","","(56,531)","","","(53)","%","","182,360","","","(76,464)","","","(42)","%"],["Other revenue","55,642","","","69,950","","","(14,308)","","","(20)","%","","51,695","","","18,255","","","35","%"],["Total fees and commissions revenue","657,213","","","668,309","","","(11,096)","","","(2)","%","","810,320","","","(142,011)","","","(18)","%"],["Other gains, net","123","","","63,742","","","(63,619)","","","N/A","","6,046","","","57,696","","","N/A"],["Gain (loss) on derivatives, net","(73,011)","","","(19,378)","","","(53,633)","","","N/A","","42,320","","","(61,698)","","","N/A"],["Gain (loss) on fair value option securities, net","(20,358)","","","(2,239)","","","(18,119)","","","N/A","","53,248","","","(55,487)","","","N/A"],["Change in fair value of mortgage servicing rights","80,261","","","41,637","","","38,624","","","N/A","","(79,524)","","","121,161","","","N/A"],["Gain (loss) on available for sale securities, net","(971)","","","3,704","","","(4,675)","","","N/A","","9,910","","","(6,206)","","","N/A"],["Total other operating revenue","$","643,257","","","$","755,775","","","(112,518)","","","(15)","%","","$","842,320","","","$","(86,545)","","","(10)","%"]]
[[/GREPCENT_TABLE]]

Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 35% of combined net interest revenue before provision for credit losses and fees and commission revenue. 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. Many of these economic factors, such as rising interest rates, that we expect will result in growth in net interest revenue or fiduciary and asset management revenue may also decrease mortgage banking production volumes and related trading. The velocity of changes in market conditions and interest rates may result in timing differences between when offsetting impacts and benefits are realized. As interest rates are expected to move higher, we expect to experience increased benefits to our net interest margin, which provides an offset to reduced mortgage-related fee income. Generally, for operating revenues not as directly related to movement in interest rates, we expect growth 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, which includes revenues from trading, customer hedging, retail brokerage and investment banking, increased $28.0 million or 25% over the prior year.

34

Trading revenue includes net realized and unrealized gains and losses primarily related to sales of residential mortgage-backed securities guaranteed by U.S. government agencies and related derivative instruments that enable our mortgage banking customers to manage their production risk. Trading revenue also includes net realized and unrealized gains and losses on municipal securities and other financial instruments that we sell to institutional customers, along with changes in the fair value of financial instruments we hold as economic hedges against market risk of our trading securities. Trading revenue was $20.3 million for 2022, a decrease of $7.3 million compared to 2021. Trading revenue was negatively affected by the disruption of the fixed income markets early in 2022. This was largely offset by favorable market conditions and increased market volatility, which led to higher margins and increased trading activity in the second half of the year. See additional discussion in "Lines of Business" section of Management's Discussion and Analysis.

Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 6 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Derivative contracts executed with customers are offset with contracts between selected counterparties and exchanges to minimize market risk from changes in commodity prices, interest rates or foreign exchange rates. Customer hedging revenue, which is largely volume driven, totaled $45.7 million for 2022, an increase of $25.3 million or 124% compared to 2021 and was primarily attributed to our energy and interest rate derivative customers. Customer hedging revenue includes credit valuation adjustments of the fair value of derivatives to reflect the risk of counterparty default.

Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan syndication fees, totaled $45.6 million for 2022, an increase of $11.2 million or 33% compared to 2021, largely related to the timing and volume of commercial loan syndication fees and municipal bond transactions.

Revenue earned from retail brokerage transactions totaled $16.4 million for 2022, a decrease of $2.4 million or 13% compared to 2021. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Revenue is primarily based on the volume of customer transactions and applicable commission rate for each type of product.

Insurance brokerage fees were $12.9 million for 2022, an increase of $1.1 million or 9% over the prior year.

Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller machine ("ATM") locations and the number of merchants served. Transaction card revenue totaled $104.3 million for 2022, a $7.3 million or 8% increase over 2021. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ("EFT") network totaled $84.6 million, up $4.5 million or 6% over 2021. The number of TransFund ATM locations totaled 2,774 at December 31, 2022 compared to 2,593 at December 31, 2021. Corporate card revenue totaled $7.2 million, up $2.3 million or 45% over 2021 due to increased transactions from the broader reopening of the economy. Merchant services fees paid by customers for account management and electronic processing of card transactions totaled $12.4 million, relatively consistent with the prior year.

Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 80% of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to those asset values vary based on the nature of the relationship. Fiduciary and managed asset relationships generally have a higher fee rate than non-fiduciary and/or managed relationships.

Fiduciary and asset management revenue increased $18.1 million or 10% compared to 2021. Higher mutual fund fees and a reduction in fee waivers was partially offset by lower trust fees. During the height of the COVID-19 pandemic, we voluntarily waived certain administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the low short-term interest rate environment. This practice subsided in 2022. We had approximately $3.1 million in fee waivers during 2022 compared to approximately $11.7 million in fee waivers during 2021.

35

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

Table 7 – Assets Under Management or Administration

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","Balance1","","Revenue2","","Margin3","","Balance1","","Revenue2","","Margin3","","Balance1","","Revenue2","","Margin3"],["Managed fiduciary assets:"],["Personal","$","10,317,729","","","$","107,325","","","1.04","%","","$","12,739,289","","","$","110,052","","","0.86","%","","$","11,172,457","","","$","96,094","","","0.86","%"],["Institutional","17,229,041","","","33,482","","","0.19","%","","17,477,280","","","29,286","","","0.17","%","","15,364,387","","","26,555","","","0.17","%"],["Total managed fiduciary assets","27,546,770","","","140,807","","","0.51","%","","30,216,569","","","139,338","","","0.46","%","","26,536,844","","","122,649","","","0.46","%"],["Non-managed assets:"],["Fiduciary","28,513,725","","","43,220","","","0.15","%","","34,320,264","","","28,645","","","0.08","%","","28,949,648","","","38,899","","","0.13","%"],["Non-fiduciary","19,467,202","","","12,299","","","0.06","%","","20,253,072","","","10,291","","","0.05","%","","18,599,156","","","5,897","","","0.03","%"],["Safekeeping and brokerage assets under administration","24,207,343","","","\u2014","","","\u2014","%","","20,127,816","","","\u2014","","","\u2014","%","","17,506,599","","","\u2014","","","\u2014","%"],["Total non-managed assets","72,188,270","","","55,519","","","0.08","%","","74,701,152","","","38,936","","","0.05","%","","65,055,403","","","44,796","","","0.07","%"],["Total assets under management or administration","$","99,735,040","","","$","196,326","","","0.20","%","","$","104,917,721","","","$","178,274","","","0.17","%","","$","91,592,247","","","$","167,445","","","0.18","%"]]
[[/GREPCENT_TABLE]]

1 Assets under management or administration balance excludes certain assets under custody held by a sub-custodian where minimal revenue is recognized. $17 billion, $22 billion and $21 billion of such assets are excluded from the 2022, 2021 and 2020 assets under management or administration balances, respectively.

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

3    Revenue divided by period-end balance.

A summary of changes in assets under management or administration for the year ended December 31, 2022, 2021, and 2020 follows:

Table 8 – Changes in Assets Under Management or Administration

(In thousands)

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021","","2020"],["Beginning balance","","$","104,917,721","","","$","91,592,247","","","$","82,740,961"],["Net inflows (outflows)","","572,812","","","4,786,237","","","1,859,868"],["Net change in fair value","","(5,755,493)","","","8,539,237","","","6,991,418"],["Ending balance","","$","99,735,040","","","$","104,917,721","","","$","91,592,247"]]
[[/GREPCENT_TABLE]]

Assets under management as of December 31, 2022 consist of 45% fixed income, 32% equities, 14% cash and 9% alternative investments. Net inflows to assets under management increased during 2022 as new financial institution client relationships were gained and existing clients added to their asset balances. The decrease in fair value of $5.8 billion mainly resulted from declines in both the fixed income and equity markets in 2022.

Deposit service charges and fees totaled $110.6 million for 2022, a $6.4 million or 6% increase over 2021, largely affected by transaction volumes as customer activity resumed following the height of the COVID-19 pandemic. Service charges earned primarily on commercial deposit accounts totaled $56.6 million, a $2.3 million or 4% increase over the previous year. Overdraft fees and non-sufficient fund fees earned primarily on consumer deposit accounts totaled $25.4 million for 2022, an increase of $3.8 million or 18% over 2021. Changes were implemented in the fourth quarter of 2022 to eliminate non-sufficient funds fees

36

and reduce consumer overdraft fees, which is expected to reduce total deposit service charges by approximately $10 million in 2023. Check card revenue totaled $23.3 million, relatively unchanged from 2021.

Mortgage banking revenue totaled $49.4 million for 2022, a $56.5 million or 53% decrease compared to 2021. Rising mortgage interest rates, low inventory, and home price affordability have placed pressure on mortgage loan originations and margins in 2022. Mortgage production revenue decreased $62.6 million. Production volume was down $1.6 billion and production revenue as a percentage of production volume also decreased 250 basis points to (0.17)%. Mortgage refinancing activity was 24% of total production in 2022 compared to 54% in 2021. Mortgage servicing revenue was $51.2 million, a $6.0 million increase compared to the prior year. The average outstanding principal balance of mortgage loans serviced for others totaled $17.9 billion at December 31, 2022, a $2.5 billion increase compared to December 31, 2021. During 2022, we acquired $3.8 billion in unpaid principal balance of mortgage servicing rights. This, combined with a purchase in the fourth quarter of 2021 with an unpaid principal balance of $2.0 billion, led to the higher mortgage servicing revenue in 2022.

Table 9 – Mortgage Banking Revenue

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Mortgage production revenue","$","(1,838)","","","$","60,712","","","$","125,848"],["Mortgage loans funded for sale","$","1,180,403","","","$","2,818,789","","","$","3,764,112"],["Add: Current year end outstanding commitments","45,492","","","171,412","","","380,637"],["Less: Prior year end outstanding commitments","171,412","","","380,637","","","158,460"],["Total mortgage production volume","1,054,483","","","2,609,564","","","3,986,289"],["Production revenue as a percentage of production volume","(0.17)","%","","2.33","%","","3.16","%"],["Realized margin on funded mortgage loans","0.63","%","","2.71","%","","2.87","%"],["Mortgage loan refinances to mortgage loans funded for sale","24","%","","54","%","","58","%"],["Primary mortgage interest rates:"],["Average","5.34","%","","2.96","%","","3.10","%"],["Period end","6.41","%","","3.11","%","","2.67","%"],["Mortgage servicing revenue","$","51,203","","","$","45,184","","","$","56,512"],["Average outstanding principal balance of mortgage loans serviced for others","17,871,306","","","15,404,548","","","18,422,210"],["Average mortgage servicing fee rates","0.29","%","","0.29","%","","0.31","%"]]
[[/GREPCENT_TABLE]]

Primary rates disclosed in Table 9 above represent rates generally available to borrowers on 30 year conforming mortgage loans.

Other revenue totaled $55.6 million for 2022, a decrease of $14.3 million or 20% compared to 2021, primarily due to lower production revenue from repossessed oil and gas properties sold in 2021; however, this impact was also partially offset by lower operating expenses related to these properties.

Other gains, net and net gains on securities and derivatives

Other gains, net decreased $63.6 million compared to 2021. In 2021, the sale of an alternative investment and sale of an equity interest received as part of the workout of a defaulted energy loan resulted in a $45.2 million gain. In addition, we experienced a $15.7 million decrease in the value of deferred compensation investments, which are held to offset the cost of various employee benefit programs in 2022.

As discussed in the Market Risk section following, the fair value of our 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, generally U.S. government agency residential mortgage-backed securities for which we have elected the fair value option, 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.

37

Table 10 – Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Gain (loss) on mortgage hedge derivative contracts, net","$","(72,987)","","","$","(19,632)","","","$","42,096"],["Gain (loss) on fair value option securities, net","(20,358)","","","(2,239)","","","53,248"],["Gain (loss) on economic hedge of mortgage servicing rights","(93,345)","","","(21,871)","","","95,344"],["Gain (loss) on change in fair value of mortgage servicing rights","80,261","","","41,637","","","(79,524)"],["Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue","(13,084)","","","19,766","","","15,820"],["Net interest revenue on fair value option securities1","569","","","1,279","","","9,085"],["Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges","$","(12,515)","","","$","21,045","","","$","24,905"]]
[[/GREPCENT_TABLE]]

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

Fourth Quarter 2022 Other Operating Revenue

Table 11 – Fourth Quarter 2022 Other Operating Revenue

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","Dec. 31, 2022","","Sep. 30, 2022","","Increase (Decrease)","","% Increase (Decrease)"],["Brokerage and trading revenue","$","63,008","","","$","61,006","","","$","2,002","","","3","%"],["Transaction card revenue","27,136","","","25,974","","","1,162","","","4","%"],["Fiduciary and asset management revenue","49,899","","","50,190","","","(291)","","","(1)","%"],["Deposit service charges and fees","26,429","","","28,703","","","(2,274)","","","(8)","%"],["Mortgage banking revenue","10,065","","","11,282","","","(1,217)","","","(11)","%"],["Other revenue","17,034","","","15,479","","","1,555","","","10","%"],["Total fees and commissions revenue","193,571","","","192,634","","","937","","","\u2014","%"],["Other gains, net","8,427","","","979","","","7,448","","","N/A"],["Gain (loss) on derivatives, net","4,548","","","(17,009)","","","21,557","","","N/A"],["Loss on fair value option securities, net","(2,568)","","","(4,368)","","","1,800","","","N/A"],["Change in fair value of mortgage servicing rights","(2,904)","","","16,570","","","(19,474)","","","N/A"],["Gain (loss) on available for sale securities, net","(3,988)","","","892","","","(4,880)","","","N/A"],["Total other operating revenue","197,086","","","189,698","","","7,388","","","4","%"]]
[[/GREPCENT_TABLE]]

Other operating revenue was $197.1 million for the fourth quarter of 2022, a $7.4 million or 4% increase compared to the third quarter of 2022.

Brokerage and trading revenue increased $2.0 million to $63.0 million. Trading revenue grew $9.5 million, largely due to an increase in volume and higher margins on U.S. agency residential mortgage-backed securities trading activity driven by favorable market conditions and increased market volatility. A decline from heightened energy derivative activity in the third quarter led to a $4.7 million decrease in customer hedging revenue. Investment banking revenue decreased $2.4 million, following record levels in the third quarter driven primarily by municipal bond transaction growth. Other revenue increased $1.6 million, largely due to higher revenue on repossessed assets while transaction card revenue grew $1.2 million along with a rise in seasonal transaction volumes.

Deposit service charges decreased $2.3 million. In the fourth quarter, we implemented changes to eliminate non-sufficient funds fees and reduce consumer overdraft fees.

38

Mortgage banking revenue was $10.1 million for the fourth quarter of 2022, a decrease of $1.2 million compared to the third quarter of 2022, as rising mortgage interest rates and continued inventory constraints place pressure on mortgage loan originations. Mortgage loan production volumes were $111 million for the fourth quarter of 2022 compared to $230 million in the third quarter of 2022. Production revenue as a percentage of production volume, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, decreased 254 basis points to (3.59)%.

Other gains, net, increased $7.4 million compared to the prior quarter primarily driven by the sale of a repossessed entity combined with a change in the value of deferred compensation investments which are held to offset the cost of various employee benefit programs. We also recognized a $4.0 million loss on the sale of available for sale securities in the fourth quarter as we repositioned our balance sheet for the current rate environment.

Other Operating Expense

2022 Other Operating Expense

Other operating expense for 2022 totaled $1.2 billion, a $13.2 million or 1% decrease compared to the prior year. Personnel expense decreased $24.5 million or 4%. Non-personnel expense increased $11.2 million or 2%.

Table 12 – Other Operating Expense

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2022vs.2021","","2022vs.2021","","Year Ended December 31,","","2021 vs. 2020","","2021 vs. 2020"],["","2022","","2021","","Increase (Decrease)","","% Increase (Decrease)","","2020","","Increase (Decrease)","","% Increase (Decrease)"],["Regular compensation","$","399,107","","","$","384,808","","","$","14,299","","","4","%","","$","390,282","","","$","(5,474)","","","(1)","%"],["Incentive compensation:"],["Cash-based compensation","172,595","","","187,974","","","(15,379)","","","(8)","%","","183,868","","","4,106","","","2","%"],["Share-based compensation","9,565","","","13,246","","","(3,681)","","","(28)","%","","18,228","","","(4,982)","","","(27)","%"],["Deferred compensation","(6,235)","","","9,789","","","(16,024)","","","(164)","%","","8,401","","","1,388","","","17","%"],["Total incentive compensation","175,925","","","211,009","","","(35,084)","","","(17)","%","","210,497","","","512","","","\u2014","%"],["Employee benefits","95,886","","","99,565","","","(3,679)","","","(4)","%","","87,695","","","11,870","","","14","%"],["Total personnel expense","670,918","","","695,382","","","(24,464)","","","(4)","%","","688,474","","","6,908","","","1","%"],["Business promotion","26,435","","","16,289","","","10,146","","","62","%","","14,511","","","1,778","","","12","%"],["Charitable contributions to BOKF Foundation","2,500","","","9,000","","","(6,500)","","","(72)","%","","9,000","","","\u2014","","","\u2014","%"],["Professional fees and services","56,342","","","50,906","","","5,436","","","11","%","","53,437","","","(2,531)","","","(5)","%"],["Net occupancy and equipment","116,867","","","108,587","","","8,280","","","8","%","","112,722","","","(4,135)","","","(4)","%"],["Insurance","17,994","","","15,881","","","2,113","","","13","%","","19,990","","","(4,109)","","","(21)","%"],["Data processing & communications","165,907","","","151,614","","","14,293","","","9","%","","135,497","","","16,117","","","12","%"],["Printing, postage and supplies","15,857","","","14,218","","","1,639","","","12","%","","15,061","","","(843)","","","(6)","%"],["Amortization of intangible assets","15,692","","","18,311","","","(2,619)","","","(14)","%","","20,443","","","(2,132)","","","(10)","%"],["Mortgage banking costs","35,834","","","42,698","","","(6,864)","","","(16)","%","","56,711","","","(14,013)","","","(25)","%"],["Other expense","40,134","","","54,822","","","(14,688)","","","(27)","%","","38,462","","","16,360","","","43","%"],["Total other operating expense","$","1,164,480","","","$","1,177,708","","","$","(13,228)","","","(1)","%","","$","1,164,308","","","$","13,400","","","1","%"],["Average number of employees (full-time equivalent)","4,759","","","4,816","","","(57)","","","(1)","%","","5,011","","","(195)","","","(4)","%"]]
[[/GREPCENT_TABLE]]

39

Personnel expense

Personnel expense decreased $24.5 million in 2022. Cash-based incentive compensation plans, which are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions, decreased $15.4 million or 8% compared 2021, primarily related to a decline in institutional trading activity, partially offset by increased incentives from growth in loans and loan commitments in the current year. Deferred compensation expense, which is offset by deferred compensation investments in other revenue, decreased $16.0 million or 164%, directly related to market movements. Regular compensation increased $14.3 million or 4%, largely due to employee merit increases received in the first quarter. Changes in assumptions of certain performance-based equity awards led to a $3.7 million or 28% decrease in share-based compensation expense. Employee benefits expense decreased $3.7 million or 4% primarily due to reduced employee healthcare costs.

Non-personnel expense

Non-personnel expense increased $11.2 million or 2% over the prior year.

Data processing and communications expense increased $14.3 million or 9% and professional fees and services increased $5.4 million or 11%, both largely affected by on-going technology project costs. Higher travel costs following a lull in travel during the COVID-19 pandemic and increased advertising costs led to a $10.1 million or 62% increase in business promotion expense. Occupancy and equipment expense was also up $8.3 million or 8% driven largely by higher operating costs on leases.

Other expense decreased $14.7 million or 27%, primarily due to lower operating expenses on repossessed assets sold in 2021; however, this was offset by lower operating revenue on these properties. Mortgage banking costs decreased $6.9 million or 16%, primarily due to a decrease in prepayments. Charitable contributions to the BOKF Foundation were $2.5 million in the current year compared to $9.0 million in the prior year. During the height of the COVID-19 pandemic and the extreme needs it created in the communities we serve, we increased our charitable contributions to the BOKF Foundation during 2021.

40

Fourth Quarter 2022 Operating Expenses

Table 13 – Fourth Quarter 2022 Other Operating Expense

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","Dec. 31, 2022","","Sep. 30, 2022","","Increase (Decrease)","","% Increase (Decrease)"],["Regular compensation","$","102,943","","","$","101,368","","","$","1,575","","","2","%"],["Incentive compensation:"],["Cash-based compensation","54,295","","","44,376","","","9,919","","","22","%"],["Share-based compensation","3,107","","","3,744","","","(637)","","","(17)","%"],["Deferred compensation","3,864","","","(1,005)","","","4,869","","","(484)","%"],["Total incentive compensation","61,266","","","47,115","","","14,151","","","30","%"],["Employee benefits","22,210","","","21,865","","","345","","","2","%"],["Total personnel expense","186,419","","","170,348","","","16,071","","","9","%"],["Business promotion","7,470","","","6,127","","","1,343","","","22","%"],["Charitable contributions to BOKF Foundation","2,500","","","\u2014","","","2,500","","","N/A"],["Professional fees and services","18,365","","","14,089","","","4,276","","","30","%"],["Net occupancy and equipment","29,227","","","29,296","","","(69)","","","\u2014","%"],["Insurance","4,677","","","4,306","","","371","","","9","%"],["Data processing & communications","43,048","","","41,743","","","1,305","","","3","%"],["Printing, postage and supplies","3,890","","","4,349","","","(459)","","","(11)","%"],["Amortization of intangible assets","3,736","","","3,943","","","(207)","","","(5)","%"],["Mortgage banking costs","9,016","","","9,504","","","(488)","","","(5)","%"],["Other expense","10,108","","","11,046","","","(938)","","","(8)","%"],["Total other operating expense","318,456","","","294,751","","","23,705","","","8","%"]]
[[/GREPCENT_TABLE]]

Other operating expense for the fourth quarter of 2022 totaled $318.5 million, an increase of $23.7 million or 8% over the third quarter of 2022.

Personnel expense increased $16.1 million or 9% compared to the third quarter of 2022. Cash-based incentive compensation increased $9.9 million or 22% due to increased sales activity combined with a one-time incentive given to all employees in the fourth quarter. Deferred compensation expense, which is offset by deferred compensation investments in other revenue, increased $4.9 million or 484%.

Non-personnel expense increased $7.6 million or 6% compared to the third quarter of 2022. A $4.3 million or 30% increase in professional fees and services and $1.3 million or 3% increase in data processing and communications expense was largely attributed to ongoing technology projects. The fourth quarter of 2022 included a $2.5 million charitable donation to the BOKF Foundation as we continue to focus on the communities we serve.

Income Taxes

Income tax expense was $139.9 million or 21.2% of net income before taxes for 2022 and $179.8 million or 22.6% of net income before taxes for 2021.

Net deferred tax assets totaled $321.3 million at December 31, 2022 compared to net deferred tax assets of $34.5 million at December 31, 2021. We have evaluated the recoverability of our deferred tax assets based on the generation of future taxable income during the periods in which those temporary differences become deductible and determined that no valuation allowance was required in 2022 or 2021.

Income tax expense was $47.9 million or 22.1% of net income before taxes for the fourth quarter of 2022 compared to $39.7 million or 20.2% of net income before taxes for the third quarter of 2022.

41

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 loan origination and servicing activities. Wealth Management provides fiduciary services, private bank 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, 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 Funds Management unit also initially recognizes accruals for loss contingencies when losses become probable. Actual losses are recognized by the lines of business if the accruals are settled.

We allocate resources and evaluate the performance of our lines of business using the net direct contribution, which includes the allocation of funds and capital costs. Credit costs are attributed to the lines of business based on net loans charged off or recovered. The difference between credit costs attributed to the lines of business and the consolidated provision for credit losses is attributed to Funds Management. In addition, we measure the performance of our business lines after allocations 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 wholesale borrowing rates or interest rate swap rates, adjusted for prepayment risk and liquidity risk. This method of transfer-pricing funds that support 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 a proxy of wholesale borrowing rates 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 wholesale funding 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 wholesale funding rates and longer duration products are weighted towards the intermediate swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years. In order to appropriately reflect the organizational value of these deposits to the lines of business, methodology adjustments are made each January that attribute more or less deposit credit value to the business lines dependent upon historical and forward-looking interest rate expectations with the offset to Funds Management and other. After several years of decreased funding credits provided to business lines from a sustained low interest rate environment, increases in short-term and long-term rates in response to the Federal Reserve's actions to control inflation caused a commensurate increase in funding credits to business lines in 2022.

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 14 following, net income attributable to our lines of business increased $103.0 million or 22% compared to the prior year. Net interest revenue grew by $211.0 million over the prior year, primarily due to increases in the short-term interest rate related to a 425 basis point increase in the federal funds rate by the Federal Reserve during 2022. Net charge-offs decreased $12.1 million compared to the prior year. Other operating revenue decreased $31.8 million. The prior year included the sale of an alternative investment that resulted in a $31.1 million pre-tax gain, net of non-controlling interest. Other operating expense was consistent with prior year. The decrease in net income attributed to Funds Management and other is largely due to the excess provision for expected credit losses over net charge-offs recorded in 2022 compared to a release of provision recorded in the prior year.

42

Table 14 – Net Income by Line of Business

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["Commercial Banking","$","460,361","","","$","328,516","","","$","306,005"],["Consumer Banking","5,889","","","27,643","","","97,974"],["Wealth Management","106,173","","","113,246","","","115,302"],["Subtotal","572,423","","","469,405","","","519,281"],["Funds Management and other","(52,150)","","","148,716","","","(84,251)"],["Total","$","520,273","","","$","618,121","","","$","435,030"]]
[[/GREPCENT_TABLE]]

2022 Commercial Banking

Commercial Banking contributed $460.4 million to consolidated net income in 2022, an increase of $131.8 million or 40% compared to the prior year.

Table 15 – Commercial Banking

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2022vs.2021","","2022vs.2021","","Year Ended December 31,","","2021vs.2020","","2021vs.2020"],["","2022","","2021","","Increase (Decrease)","","% Increase (Decrease)","","2020","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","818,213","","","$","606,902","","","$","211,311","","","35","%","","$","714,932","","","$","(108,030)","","","(15)","%"],["Net interest expense from internal sources","(73,764)","","","(71,167)","","","(2,597)","","","4","%","","(126,444)","","","55,277","","","(44)","%"],["Total net interest revenue","744,449","","","535,735","","","208,714","","","39","%","","588,488","","","(52,753)","","","(9)","%"],["Net loans charged off","17,726","","","31,128","","","(13,402)","","","(43)","%","","69,475","","","(38,347)","","","(55)","%"],["Net interest revenue after net loans charged off","726,723","","","504,607","","","222,116","","","44","%","","519,013","","","(14,406)","","","(3)","%"],["Fees and commissions revenue","233,873","","","227,081","","","6,792","","","3","%","","187,119","","","39,962","","","19","%"],["Other gains, net","7,721","","","35,321","","","(27,600)","","","(78)","%","","242","","","35,079","","","14495","%"],["Other operating revenue","241,594","","","262,402","","","(20,808)","","","(8)","%","","187,361","","","75,041","","","40","%"],["Personnel expense","174,505","","","168,285","","","6,220","","","4","%","","159,165","","","9,120","","","6","%"],["Non-personnel expense","116,212","","","112,804","","","3,408","","","3","%","","99,738","","","13,066","","","13","%"],["Other operating expense","290,717","","","281,089","","","9,628","","","3","%","","258,903","","","22,186","","","9","%"],["Net direct contribution","677,600","","","485,920","","","191,680","","","39","%","","447,471","","","38,449","","","9","%"],["Gain on financial instruments, net","1","","","154","","","(153)","","","N/A","","193","","","(39)","","","N/A"],["Gain (loss) on repossessed assets, net","(1,903)","","","13,001","","","(14,904)","","","N/A","","(2,677)","","","15,678","","","N/A"],["Corporate expense allocations","67,337","","","49,941","","","17,396","","","35","%","","24,862","","","25,079","","","101","%"],["Income before taxes","608,361","","","449,134","","","159,227","","","35","%","","420,125","","","29,009","","","7","%"],["Federal and state income taxes","148,000","","","120,618","","","27,382","","","23","%","","114,120","","","6,498","","","6","%"],["Net income","$","460,361","","","$","328,516","","","$","131,845","","","40","%","","$","306,005","","","$","22,511","","","7","%"],["Average assets","$","29,084,957","","","$","28,536,881","","","$","548,076","","","2","%","","$","26,994,075","","","$","1,542,806","","","6","%"],["Average loans","17,553,398","","","16,853,006","","","700,392","","","4","%","","18,711,372","","","(1,858,366)","","","(10)","%"],["Average deposits","18,323,412","","","17,659,695","","","663,717","","","4","%","","14,319,729","","","3,339,966","","","23","%"],["Average invested capital","2,057,560","","","2,082,488","","","(24,928)","","","(1)","%","","2,220,177","","","(137,689)","","","(6)","%"]]
[[/GREPCENT_TABLE]]

43

Net interest revenue increased $208.7 million or 39% compared to the prior year primarily due to an increase in the spread on deposits sold to our Funds Management unit. Net loans charged-off decreased $13.4 million.

Fees and commissions revenue increased $6.8 million or 3%. Customer hedging revenue grew $11.3 million, primarily attributed to our energy and interest rate derivative customers. Syndication fees increased $7.5 million due to the timing and volume of completed transactions during the year. Transaction card revenue was also up $7.0 million due to growth in revenues from the processing of transactions on behalf of the members of our TransFund EFT network combined with increased transactions from the broader reopening of the economy. These were partially offset by a decline in production revenue from repossessed oil and gas properties sold in 2021.

Operating expense increased $9.6 million or 3% over 2021. Personnel expense increased $6.2 million or 4%, primarily due to incentive compensation costs associated with growth in loans and deposit balances. Non-personnel expense increased $3.4 million or 3%, primarily due to project related data processing and communications fees, occupancy expenses and business promotion fees. These were partially offset by decreased operating expenses on repossessed oil and gas properties sold in 2021. The prior year also included the sale of an alternative investment that resulted in a $31.1 million pre-tax gain, net of non-controlling interest. Corporate expense allocations increased $17.4 million or 35% compared to the prior year due to growth in lending activity.

The average outstanding balance of loans attributed to Commercial Banking increased $700 million or 4% compared to 2021 to $17.6 billion. See the Loans section of Management's Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans, which are primarily attributed to the Commercial Banking segment.

Average deposits attributed to Commercial Banking were $18.3 billion for 2022, a $664 million or 4% increase over the prior year. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital for further discussion of this change.

44

Fourth Quarter 2022 Commercial Banking

Table 16 - Commercial Banking - Fourth Quarter 2022

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","Dec. 31, 2022","","Sep. 30, 2022","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","271,615","","","$","226,016","","","$","45,599","","","20","%"],["Net interest expense from internal sources","(38,781)","","","(17,951)","","","(20,830)","","","(116)","%"],["Total net interest revenue","232,834","","","208,065","","","24,769","","","12","%"],["Net loans charged off (recovered)","14,411","","","(526)","","","14,937","","","2840","%"],["Net interest revenue after net loans charged off (recovered)","218,423","","","208,591","","","9,832","","","5","%"],["Fees and commissions revenue","58,881","","","58,147","","","734","","","1","%"],["Other gains, net","3,213","","","2,239","","","974","","","N/A"],["Other operating revenue","62,094","","","60,386","","","1,708","","","3","%"],["Personnel expense","48,366","","","44,998","","","3,368","","","7","%"],["Non-personnel expense","31,356","","","30,874","","","482","","","2","%"],["Other operating expense","79,722","","","75,872","","","3,850","","","5","%"],["Net direct contribution","200,795","","","193,105","","","7,690","","","4","%"],["Gain on financial instruments, net","140","","","4","","","136","","","N/A"],["Gain (loss) on repossessed assets, net","978","","","(158)","","","1,136","","","N/A"],["Corporate expense allocations","18,007","","","16,451","","","1,556","","","9","%"],["Income before taxes","183,906","","","176,500","","","7,406","","","4","%"],["Federal and state income taxes","44,532","","","42,670","","","1,862","","","4","%"],["Net income","$","139,374","","","$","133,830","","","$","5,544","","","4","%"],["Average assets","$","28,373,856","","","$","28,890,429","","","$","(516,573)","","","(2)","%"],["Average loans","18,254,559","","","17,904,779","","","349,780","","","2","%"],["Average deposits","16,832,244","","","17,966,661","","","(1,134,417)","","","(6)","%"],["Average invested capital","2,107,241","","","2,059,149","","","48,092","","","2","%"]]
[[/GREPCENT_TABLE]]

Commercial Banking contributed $139.4 million to consolidated net income in the fourth quarter of 2022, an increase of $5.5 million compared to the third quarter of 2022. Net interest revenue increased $24.8 million over the prior quarter, largely due to an increase in the spread on deposits sold to our Funds Management unit. Net loans charged off increased $14.9 million. Personnel expense increased $3.4 million driven by incentive compensation costs associated with growth in revenue.

45

2022 Consumer Banking

Consumer Banking services are provided 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 our Consumer Banking markets.

Net income attributed to Consumer Banking totaled $5.9 million for 2022 compared to $27.6 million in the prior year. This decrease is largely due to lower mortgage loan production volumes as rising mortgage interest rates and continued inventory constraints place pressure on mortgage loan originations.

Table 17 – Consumer Banking

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2022vs.2021","","2022vs.2021","","Year Ended December 31,","","2021vs.2020","","2021vs.2020"],["","2022","","2021","","Increase (Decrease)","","% Increase (Decrease)","","2020","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","69,646","","","$","67,856","","","$","1,790","","","3","%","","$","78,004","","","$","(10,148)","","","(13)","%"],["Net interest revenue from internal sources","88,603","","","35,671","","","52,932","","","148","%","","69,000","","","(33,329)","","","(48)","%"],["Total net interest revenue","158,249","","","103,527","","","54,722","","","53","%","","147,004","","","(43,477)","","","(30)","%"],["Net loans charged off","5,260","","","4,009","","","1,251","","","31","%","","2,805","","","1,204","","","43","%"],["Net interest revenue after net loans charged off","152,989","","","99,518","","","53,471","","","54","%","","144,199","","","(44,681)","","","(31)","%"],["","","","","","","","","","","","0"],["Fees and commissions revenue","121,926","","","173,364","","","(51,438)","","","(30)","%","","245,554","","","(72,190)","","","(29)","%"],["Other losses, net","(107)","","","(23)","","","(84)","","","365","%","","(1,835)","","","1,812","","","(99)","%"],["Other operating revenue","121,819","","","173,341","","","(51,522)","","","(30)","%","","243,719","","","(70,378)","","","(29)","%"],["Personnel expense","87,183","","","85,989","","","1,194","","","1","%","","91,903","","","(5,914)","","","(6)","%"],["Other non-personnel expense","122,027","","","123,607","","","(1,580)","","","(1)","%","","138,499","","","(14,892)","","","(11)","%"],["Total other operating expense","209,210","","","209,596","","","(386)","","","\u2014","%","","230,402","","","(20,806)","","","(9)","%"],["Net direct contribution","65,598","","","63,263","","","2,335","","","4","%","","157,516","","","(94,253)","","","(60)","%"],["Gain (loss) on financial instruments, net","(93,346)","","","(21,871)","","","(71,475)","","","N/A","","95,344","","","(117,215)","","","N/A"],["Change in fair value of mortgage servicing rights","80,261","","","41,637","","","38,624","","","N/A","","(79,524)","","","121,161","","","N/A"],["Gain on repossessed assets, net","139","","","85","","","54","","","N/A","","276","","","(191)","","","N/A"],["Corporate expense allocations","44,965","","","46,010","","","(1,045)","","","(2)","%","","42,155","","","3,855","","","9","%"],["Net income before taxes","7,687","","","37,104","","","(29,417)","","","(79)","%","","131,457","","","(94,353)","","","(72)","%"],["Federal and state income taxes","1,798","","","9,461","","","(7,663)","","","(81)","%","","33,483","","","(24,022)","","","(72)","%"],["Net income","$","5,889","","","$","27,643","","","$","(21,754)","","","(79)","%","","$","97,974","","","$","(70,331)","","","(72)","%"],["Average assets","$","10,230,437","","","$","10,029,687","","","$","200,750","","","2","%","","$","9,842,114","","","$","187,573","","","2","%"],["Average loans","1,688,697","","","1,769,384","","","(80,687)","","","(5)","%","","1,764,682","","","4,702","","","\u2014","%"],["Average deposits","8,763,046","","","8,439,577","","","323,469","","","4","%","","7,599,937","","","839,640","","","11","%"],["Average invested capital","250,546","","","250,554","","","(8)","","","\u2014","%","","259,333","","","(8,779)","","","(3)","%"]]
[[/GREPCENT_TABLE]]

Net interest revenue from Consumer Banking activities increased by $54.7 million or 53% compared to 2021, primarily due to an increase in the spread on deposits sold to our Funds Management unit. Average consumer deposits grew $323 million or 4%.

46

Fees and commissions revenue decreased $51.4 million or 30% compared to the prior year, largely attributed to reduced mortgage loan production volume combined with narrowing margins. Mortgage production volume decreased $1.6 billion or 60% and production revenue as a percentage of production volume, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, decreased 250 basis points to (0.17)%. Operating expense was consistent with the prior year. Corporate expense allocations decreased $1.0 million or 2% compared to the prior year.

The net cost of change in fair value of mortgage servicing rights and related economic hedges, as more fully presented in Table 10, was $12.5 million for 2022 compared to a net benefit of $21.0 million in 2021.

Fourth Quarter 2022 Consumer Banking

Table 18 - Consumer Banking - Fourth Quarter 2022

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","Dec. 31, 2022","","Sep. 30, 2022","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","18,464","","","$","17,482","","","$","982","","","6","%"],["Net interest revenue from internal sources","34,838","","","26,469","","","8,369","","","32","%"],["Total net interest revenue","53,302","","","43,951","","","9,351","","","21","%"],["Net loans charged off","1,544","","","1,408","","","136","","","10","%"],["Net interest revenue after net loans charged off","51,758","","","42,543","","","9,215","","","22","%"],["Fees and commissions revenue","27,618","","","30,230","","","(2,612)","","","(9)","%"],["Other losses, net","(35)","","","(44)","","","9","","","N/A"],["Other operating revenue","27,583","","","30,186","","","(2,603)","","","(9)","%"],["Personnel expense","22,446","","","22,243","","","203","","","1","%"],["Non-personnel expense","32,080","","","30,993","","","1,087","","","4","%"],["Other operating expense","54,526","","","53,236","","","1,290","","","2","%"],["Net direct contribution","24,815","","","19,493","","","5,322","","","27","%"],["Gain (loss) on financial instruments, net","1,805","","","(21,395)","","","23,200","","","N/A"],["Change in fair value of mortgage servicing rights","(2,904)","","","16,570","","","(19,474)","","","N/A"],["Corporate expense allocations","11,972","","","10,792","","","1,180","","","11","%"],["Income before taxes","11,744","","","3,876","","","7,868","","","203","%"],["Federal and state income taxes","2,748","","","906","","","1,842","","","203","%"],["Net income","$","8,996","","","$","2,970","","","$","6,026","","","203","%"],["Average assets","$","10,078,381","","","$","10,233,401","","","$","(155,020)","","","(2)","%"],["Average loans","1,725,555","","","1,686,498","","","39,057","","","2","%"],["Average deposits","8,617,085","","","8,812,884","","","(195,799)","","","(2)","%"],["Average invested capital","256,905","","","250,256","","","6,649","","","3","%"]]
[[/GREPCENT_TABLE]]

Consumer Banking contributed $9.0 million to net income in the fourth quarter of 2022, an increase of $6.0 million compared to the third quarter of 2022. Net interest revenue increased $9.4 million, mainly due to improved spreads on deposits sold to our Funds Management unit. Fees and commissions revenue decreased $2.6 million. Deposit service charges decreased $1.5 million from reduced consumer overdraft charges as expected from changes implemented in the fourth quarter of 2022. Mortgage banking revenue decreased $1.2 million due to reduced mortgage production volume combined with narrowing margins. Other operating expense increased $1.3 million over the third quarter of 2022 due to increases in professional fees and other expenses.

47

2022 Wealth Management

Wealth Management contributed $106.2 million to consolidated net income in 2022, a decrease of $7.1 million or 6% compared to the prior year. 

Table 19 – Wealth Management

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","2022vs.2021","","2022vs.2021","","Year Ended December 31,","","2021vs.2020","","2021vs.2020"],["","2022","","2021","","Increase (Decrease)","","% Increase (Decrease)","","2020","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","155,974","","","$","214,458","","","$","(58,484)","","","(27)","%","","$","130,818","","","$","83,640","","","64","%"],["Net interest revenue (expense) from internal sources","5,623","","","(386)","","","6,009","","","(1557)","%","","(13,528)","","","13,142","","","(97)","%"],["Total net interest revenue","161,597","","","214,072","","","(52,475)","","","(25)","%","","117,290","","","96,782","","","83","%"],["Net loans recovered","(175)","","","(223)","","","48","","","(22)","%","","(209)","","","(14)","","","7","%"],["Net interest revenue after net loans recovered","161,772","","","214,295","","","(52,523)","","","(25)","%","","117,499","","","96,796","","","82","%"],["Fees and commissions revenue","339,538","","","298,765","","","40,773","","","14","%","","399,229","","","(100,464)","","","(25)","%"],["Other gains (losses), net","(37)","","","197","","","(234)","","","(119)","%","","(395)","","","592","","","(150)","%"],["Other operating revenue","339,501","","","298,962","","","40,539","","","14","%","","398,834","","","(99,872)","","","(25)","%"],["Personnel expense","223,718","","","234,031","","","(10,313)","","","(4)","%","","243,681","","","(9,650)","","","(4)","%"],["Other non-personnel expense","88,459","","","86,695","","","1,764","","","2","%","","82,335","","","4,360","","","5","%"],["Other operating expense","312,177","","","320,726","","","(8,549)","","","(3)","%","","326,016","","","(5,290)","","","(2)","%"],["Net direct contribution","189,096","","","192,531","","","(3,435)","","","(2)","%","","190,317","","","2,214","","","1","%"],["Gain on financial instruments, net","4","","","\u2014","","","4","","","N/A","","4","","","(4)","","","N/A"],["Corporate expense allocations","50,241","","","40,341","","","9,900","","","25","%","","35,359","","","4,982","","","14","%"],["Net income before taxes","138,859","","","152,190","","","(13,331)","","","(9)","%","","154,962","","","(2,772)","","","(2)","%"],["Federal and state income tax","32,686","","","38,944","","","(6,258)","","","(16)","%","","39,660","","","(716)","","","(2)","%"],["Net income","$","106,173","","","$","113,246","","","$","(7,073)","","","(6)","%","","$","115,302","","","$","(2,056)","","","(2)","%"],["Average assets","$","16,209,684","","","$","19,425,475","","","$","(3,215,791)","","","(17)","%","","$","15,695,646","","","$","3,729,829","","","24","%"],["Average loans","2,166,231","","","1,981,159","","","185,072","","","9","%","","1,758,226","","","222,933","","","13","%"],["Average deposits","8,491,377","","","9,426,771","","","(935,394)","","","(10)","%","","8,676,047","","","750,724","","","9","%"],["Average invested capital","279,939","","","310,627","","","(30,688)","","","(10)","%","","300,860","","","9,767","","","3","%"]]
[[/GREPCENT_TABLE]]

Combined net interest revenue and fees and commission revenue attributed to the Wealth Management segment totaled $501.1 million for 2022, a decrease of $11.7 million compared to the prior year. Total revenue from trading activities decreased $89.5 million compared to 2021, largely due to disruption in the fixed income markets due to economic uncertainty, primarily in the first quarter of 2022, combined with narrowing margins and lower trading volumes. This decrease was partially offset by an increase in the spread on deposits sold to our Funds Management unit. Fiduciary and asset management revenue increased $18.0 million. Growth in mutual fund fees and decreased waivers were partially offset by lower trust fees. Other revenue increased $26.7 million, largely due to higher derivative margin use fees.

Average Wealth Management loans grew by $185 million or 9% to $2.2 billion. Average deposits attributed to Wealth Management decreased $935 million or 10% to $8.5 billion in 2022.

Operating expense decreased $8.5 million or 3% compared to the prior year due to incentive compensation costs related to reduced trading activity. Corporate expense allocations increased $9.9 million or 25% over the prior year.

48

Fourth Quarter 2022 Wealth Management

Table 20 - Wealth Management - Fourth Quarter 2022

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","Three Months Ended"],["","Dec. 31, 2022","","Sep. 30, 2022","","Increase (Decrease)","","% Increase (Decrease)"],["Net interest revenue from external sources","$","25,585","","","$","34,746","","","$","(9,161)","","","(26)","%"],["Net interest revenue (expense) from internal sources","8,913","","","(1,162)","","","10,075","","","867","%"],["Total net interest revenue","34,498","","","33,584","","","914","","","3","%"],["Net loans recovered","(22)","","","(22)","","","\u2014","","","\u2014","%"],["Net interest revenue after net loans recovered","34,520","","","33,606","","","914","","","3","%"],["Fees and commissions revenue","114,630","","","113,113","","","1,517","","","1","%"],["Other losses, net","(20)","","","\u2014","","","(20)","","","N/A"],["Other operating revenue","114,610","","","113,113","","","1,497","","","1","%"],["Personnel expense","59,041","","","56,939","","","2,102","","","4","%"],["Non-personnel expense","22,970","","","22,212","","","758","","","3","%"],["Other operating expense","82,011","","","79,151","","","2,860","","","4","%"],["Net direct contribution","67,119","","","67,568","","","(449)","","","(1)","%"],["Corporate expense allocations","12,733","","","12,934","","","(201)","","","(2)","%"],["Income before taxes","54,390","","","54,634","","","(244)","","","\u2014","%"],["Federal and state income taxes","12,790","","","12,826","","","(36)","","","\u2014","%"],["Net income","$","41,600","","","$","41,808","","","$","(208)","","","\u2014","%"],["Average assets","$","12,912,630","","","$","13,818,299","","","$","(905,669)","","","(7)","%"],["Average loans","2,223,275","","","2,163,975","","","59,300","","","3","%"],["Average deposits","7,888,753","","","7,999,074","","","(110,321)","","","(1)","%"],["Average invested capital","292,689","","","284,681","","","8,008","","","3","%"]]
[[/GREPCENT_TABLE]]

Wealth Management contributed $41.6 million to net income in the fourth quarter of 2022, consistent with the third quarter of 2022. Combined net interest and fee revenue totaled $149.1 million, an increase of $2.4 million compared to prior quarter, primarily due to higher volume of U.S. government agency residential mortgage-backed securities trading activity. Other revenue decreased $2.3 million due to lower energy hedging in the fourth quarter. Operating expense increased $2.9 million, primarily due to increased volume-driven incentive compensation costs.

49

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 December 31, 2022 and December 31, 2021.

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 totaled $4.5 billion at December 31, 2022, a decrease of $4.7 billion compared to December 31, 2021. Our trading portfolio expanded during 2021 in order to provide greater liquidity in the housing market during a time of record mortgage loan production volumes and to meet demand of our growing institutional customer base. As inflation pressure increased throughout 2022 and the conflict in Ukraine intensified, fixed income markets were disrupted reducing the demand for these securities. Consequently, we reduced our inventory of trading securities. As discussed in the Market Risk section of this report, trading activities involve risk of loss from adverse price movements. We mitigate this risk within board-approved value-at-risk 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 December 31, 2022, the carrying value of investment (held-to-maturity) securities was $2.5 billion, including a $558 thousand allowance for expected credit losses, compared to $211 million at December 31, 2021 with a $555 thousand allowance for expected credit losses. The fair value of investment securities was $2.3 billion at December 31, 2022 and $231 million at December 31, 2021. Investment securities consist primarily of residential mortgage-backed securities issued by U.S. government agencies, intermediate and long-term, fixed rate Oklahoma and Texas municipal bonds, and taxable Texas school construction bonds. The investment security portfolio is diversified among issuers. During the second quarter of 2022, the Company transferred certain U.S. government agency mortgage-backed securities from the available for sale portfolio to the investment securities portfolio to limit the effect of future rate increases on the tangible common equity ratio. No gains or losses were recognized in the Consolidated Statements of Earnings at the time of the transfer. At the time of transfer, the fair value totaled $2.4 billion, amortized cost totaled $2.7 billion and the pretax unrealized loss totaled $268 million. Transfers of debt securities into the investment securities portfolio are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in Accumulated Other Comprehensive Income and in the carrying value of the investment securities portfolio. Such amounts are amortized over the estimated remaining lives of the securities as an adjustment to yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities.

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. At December 31, 2022, the fair value of available for sale securities was $11.5 billion, a decrease of $1.7 billion compared to December 31, 2021. The amortized cost of available for sale securities totaled $12.4 billion at December 31, 2022, a decrease of $705 million compared to December 31, 2021. Available for sale securities consist 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 for which the principal and interest payments on the underlying loans are fully guaranteed. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans. At December 31, 2022, residential mortgage-backed securities represented 56% of total fair value of available for sale securities.

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 effective duration of the combined residential mortgage-backed securities portfolio held in investment and available for sale securities portfolios at December 31, 2022 is 3.2 years. Management estimates the combined portfolios' duration extends to 3.7 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.9 years assuming a 100 basis point decline in the current rate environment.

The aggregate gross amount of unrealized losses on available for sale securities totaled $894 million at December 31, 2022, a $780 million increase compared to December 31, 2021. 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 credit impairment of available for sale securities was identified in 2022.

50

Certain residential mortgage-backed securities issued by U.S. government agencies and included in Fair value option securities on the Consolidated Balance Sheets have been segregated and designated as economic hedges of changes in the fair value of our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of mortgage servicing rights and related derivative contracts. Fair value option securities totaled $297 million, an increase of $253 million over 2021. See Market Risk section for further details.

Bank-Owned Life Insurance

We have approximately $407 million of bank-owned life insurance at December 31, 2022. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $312 million is held in separate accounts and $95 million represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies. Our separate account holdings are invested in diversified portfolios of investment-grade fixed income securities and cash equivalents including U.S. Treasury and Agency securities, residential mortgage-backed securities, corporate debt, asset-backed and commercial mortgage-backed securities. The portfolios are managed by unaffiliated professional managers within parameters established in the portfolio’s investment guidelines. The cash surrender value of certain life insurance policies is further supported by a stable value wrap which protects against changes in the fair value of the investments. As of December 31, 2022, the fair value of investments held in separate accounts covered by the stable value wrap was approximately $282 million. Since the underlying fair value of the investments held in separate accounts at December 31, 2022 was below the net book value of the investments, $29 million of cash surrender value was supported by the stable value wrap. Future rate increases may cause write-downs in the short-term. The stable value wrap is provided by a domestic financial institution. 

51

Loans

The aggregate loan portfolio before allowance for loan losses totaled $22.6 billion at December 31, 2022, an increase of $2.4 billion compared to December 31, 2021, driven by growth in commercial loans, commercial real estate loans and loans to individuals.

Table 21 – Loans

(In thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Commercial:"],["Healthcare","","$","3,845,017","","","$","3,414,940"],["Services","","3,431,521","","","3,367,193"],["Energy","","3,424,790","","","3,006,884"],["General business","","3,496,859","","","2,717,448"],["Total commercial","","14,198,187","","","12,506,465"],["Commercial real estate:"],["Industrial","","1,221,501","","","766,125"],["Multifamily","","1,212,883","","","786,404"],["Office","","1,053,331","","","1,040,963"],["Retail","","620,518","","","679,917"],["Residential construction and land development","","95,684","","","120,016"],["Other commercial real estate","","402,860","","","437,900"],["Total commercial real estate","","4,606,777","","","3,831,325"],["Paycheck protection program","","14,312","","","276,341"],["Loans to individuals:"],["Residential mortgage","","1,890,784","","","1,722,170"],["Residential mortgage guaranteed by U.S. government agencies","","245,940","","","354,173"],["Personal","","1,601,150","","","1,515,206"],["Total loans to individuals","","3,737,874","","","3,591,549"],["Total","","$","22,557,150","","","$","20,205,680"]]
[[/GREPCENT_TABLE]]

Commercial

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

Commercial loans totaled $14.2 billion or 63% of the loan portfolio at December 31, 2022, increasing $1.7 billion or 14% compared to December 31, 2021, primarily related to growth in general business loan balances, with healthcare, energy and services loans also increasing.

52

Approximately 73% of commercial loans are located within our geographic footprint, based on collateral location. Loans for which the collateral location is less relevant, such as unsecured loans and reserve-based energy loans, are categorized by the borrower's primary operating location. The largest concentration of loans in this segment outside of our footprint is California, totaling 5% of the segment.

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

Outstanding energy loans totaled $3.4 billion or 15% of total loans at December 31, 2022. Approximately $2.7 billion or 78% of energy loans were to oil and gas producers, a $478 million increase compared to December 31, 2021. 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 72% of the committed production loans are secured by properties primarily producing oil and 28% of the committed production loans are secured by properties primarily producing natural gas. 

Loans to midstream oil and gas companies totaled $575 million or 17% of energy loans, a decrease of $71 million compared to the prior year. Loans to borrowers that provide services to the energy industry totaled $157 million or 5% of energy loans, a $15 million increase during 2022. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $26 million or less than 1% of energy loans, a $3.9 million decrease from the prior year.

Unfunded energy loan commitments were $3.8 billion at December 31, 2022, up $806 million over December 31, 2021. While utilization levels remain low, this provides ample capacity for growth from our current customer base.

The healthcare sector of the loan portfolio totaled $3.8 billion or 17% of total loans. Healthcare loans increased $430 million over December 31, 2021, 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.

The services sector of the loan portfolio increased $64 million to $3.4 billion or 15% of total loans. Service sector loans consist of a large number of loans to a variety of businesses including Native American tribal and state and local municipal government entities, Native American tribal casino operations, educational services, foundations and not-for-profit organizations and specialty trade contractors. Approximately $1.6 billion of the services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer’s business. 

General business loans increased $779 million to $3.5 billion or 16% of total loans. General business loans primarily consist of $2.1 billion of wholesale/retail loans and $1.4 billion of loans from other commercial industries.

We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $100 million and with three or more non-affiliated banks as participants. At December 31, 2022, the outstanding principal balance of these loans totaled $5.3 billion, including $2.5 billion in the energy sector. Based on dollars committed, approximately 80% of shared national credits are to borrowers with local market relationships and we serve as the agent lender in approximately 22% of our shared national credits. 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.

53

Commercial Real Estate

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

The outstanding balance of commercial real estate loans totaled $4.6 billion or 20% of the loan portfolio, an increase of $775 million over December 31, 2021. Loans secured by industrial facilities increased $455 million or 59%. Loans secured by multifamily real estate increased $426 million or 54%. Loans secured by retail facilities decreased $59 million or 9%. Other real estate loans decreased $35 million or 8%.

Approximately 67% of commercial real estate loans are in our geographic footprint based on collateral location. The largest concentration of loans in this segment outside our footprint is Utah, totaling 10% of the segment. All other states represent less than 5% individually.

Unfunded commercial real estate loan commitments were $3.1 billion at December 31, 2022, a $1.2 billion increase over the prior year. We take a disciplined approach to managing our concentration of commercial real estate loan commitments as a percentage of Tier 1 Capital. While loan commitments are presently at the upper concentration limit, we expect continued growth in our outstanding commercial real estate balances as loans fund.

Paycheck Protection Program

We participated 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. The remaining loans in this portfolio generally have a contractual term of five years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed, and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a fixed interest rate of 1%. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. The remaining outstanding balance of PPP loans was $14 million or less than 1% of the loan portfolio. Remaining unaccreted origination fees were not significant at December 31, 2022.

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. 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. 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 mortgage loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Home equity loans are primarily first-lien and fully amortizing.

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

54

Loans to individuals totaled $3.7 billion or 17% of the loan portfolio, growing $146 million over December 31, 2021. Approximately 91% of loans to individuals are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans, are categorized by the borrower’s primary operating location.

The 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.

55

Table 22 – Loans Managed by Primary Geographical Market

(In thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Texas:"],["Commercial","","$","6,869,979","","","$","6,068,700"],["Commercial real estate","","1,555,508","","","1,253,439"],["Paycheck protection program","","8,639","","","81,654"],["Loans to individuals","","982,700","","","942,982"],["Total Texas","","9,416,826","","","8,346,775"],["Oklahoma:"],["Commercial","","3,379,468","","","2,633,014"],["Commercial real estate","","582,109","","","546,021"],["Paycheck protection program","","3,109","","","69,817"],["Loans to individuals","","2,077,124","","","2,024,404"],["Total Oklahoma","","6,041,810","","","5,273,256"],["Colorado:"],["Commercial","","2,147,969","","","1,936,149"],["Commercial real estate","","613,912","","","470,937"],["Paycheck protection program","","1,230","","","82,781"],["Loans to individuals","","241,902","","","256,533"],["Total Colorado","","3,005,013","","","2,746,400"],["Arizona:"],["Commercial","","1,123,569","","","1,130,798"],["Commercial real estate","","860,947","","","674,309"],["Paycheck protection program","","720","","","21,594"],["Loans to individuals","","229,872","","","186,528"],["Total Arizona","","2,215,108","","","2,013,229"],["Kansas/Missouri:"],["Commercial","","310,715","","","338,697"],["Commercial real estate","","479,968","","","382,761"],["Paycheck protection program","","\u2014","","","4,718"],["Loans to individuals","","131,307","","","110,889"],["Total Kansas/Missouri","","921,990","","","837,065"],["New Mexico:"],["Commercial","","262,735","","","306,964"],["Commercial real estate","","417,008","","","442,128"],["Paycheck protection program","","614","","","13,510"],["Loans to individuals","","67,163","","","63,930"],["Total New Mexico","","747,520","","","826,532"],["Arkansas:"],["Commercial","","103,752","","","92,143"],["Commercial real estate","","97,325","","","61,730"],["Paycheck protection program","","\u2014","","","2,267"],["Loans to individuals","","7,806","","","6,283"],["Total Arkansas","","208,883","","","162,423"],["Total BOK Financial loans","","$","22,557,150","","","$","20,205,680"]]
[[/GREPCENT_TABLE]]

56

Table 23 – Loan Maturity and Interest Rate Sensitivity at December 31, 2022

(In thousands)

[[GREPCENT_TABLE]]
[["","","","","Remaining Maturities of Selected Loans"],["","","Total","","Within 1 Year","","1-5 Years","","5 - 15 Years","","After 15 Years"],["Loan maturity:"],["Commercial","","$","14,198,187","","","$","2,218,916","","","$","9,907,795","","","$","1,826,250","","","$","245,226"],["Commercial real estate","","4,606,777","","","1,532,618","","","2,767,611","","","281,275","","","25,273"],["Paycheck protection program","","14,312","","","8,643","","","5,669","","","\u2014","","","\u2014"],["Loans to individuals","","3,737,874","","","581,351","","","1,084,957","","","670,433","","","1,401,133"],["Total","","$","22,557,150","","","$","4,341,528","","","$","13,766,032","","","$","2,777,958","","","$","1,671,632"],["Interest rate sensitivity for selected loans with:"],["Predetermined interest rates","","$","6,363,116","","","$","375,344","","","$","2,531,446","","","$","2,144,232","","","$","1,312,094"],["Floating or adjustable interest rates","","16,194,034","","","3,966,184","","","11,234,586","","","633,726","","","359,538"],["Total","","$","22,557,150","","","$","4,341,528","","","$","13,766,032","","","$","2,777,958","","","$","1,671,632"]]
[[/GREPCENT_TABLE]]

Off-Balance Sheet Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 24. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

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

Table 24 – Off-Balance Sheet Credit Commitments

(In thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Loan commitments","","$","15,424,431","","","$","12,471,482"],["Standby letters of credit","","740,039","","","699,743"],["Unpaid principal balance of residential mortgage loans sold with recourse","","44,742","","","54,619"],["Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran's Affairs","","1,005,368","","","1,095,877"]]
[[/GREPCENT_TABLE]]

57

Customer Derivative Programs

We offer programs that permit our customers to hedge various risks including fluctuations in energy, interest rates, foreign exchange rates, and other commodities. 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 or exchanges to minimize market risk to us from 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 options to determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

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

A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This occurs if the credit standing of the customer or counterparty deteriorates such that either the fair value of underlying collateral no longer supports the contract or the customer or counterparty’s ability to provide margin collateral becomes 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 December 31, 2022, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $1.0 billion compared to $1.1 billion at December 31, 2021. Derivative contracts carried as assets include energy contracts with fair values of $638 million, foreign exchange contracts with fair values of $217 million and interest rate swaps primarily sold to loan customers with fair values of $159 million. Before consideration of cash margin paid to counterparties, the aggregate net fair values of derivative contracts held under these programs reported as liabilities totaled $1.0 billion.

At December 31, 2022, total derivative assets were reduced by $182 million of cash collateral received from counterparties, and total derivative liabilities were reduced by $484 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement. Derivative contracts executed with customers may be secured by non-cash collateral in conjunction with a credit agreement with that customer such as proven producing oil and gas properties. Access to this collateral in the event of default is reasonably assured.

A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 6 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 December 31, 2022 follows in Table 25.

Table 25 – Fair Value of Derivative Contracts

(In thousands)

[[GREPCENT_TABLE]]
[["Customers","","$","595,711"],["Banks and other financial institutions","","136,134"],["Exchanges and clearing organizations","","99,394"],["Fair value of customer hedge asset derivative contracts, net","","$","831,239"]]
[[/GREPCENT_TABLE]]

The largest exposure to a single counterparty was to an exchange for $88 million of net derivative positions and $104 million of cash collateral placed at December 31, 2022.

58

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 down to an equivalent of $60.93 per barrel of oil would decrease the fair value of derivative assets by $328 million with lending customers comprising the bulk of the assets. An increase in prices up to the equivalent of $91.25 per barrel of oil would increase the fair value of derivative assets by $601 million. Liquidity requirements of this program are also affected by our credit rating. 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 December 31, 2022, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

59

Summary of Credit Loss Experience

Table 26 – Summary of Credit Loss Experience

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended"],["","Dec. 31, 2022","","Dec. 31, 2021"],["Allowance for loan losses:"],["Beginning balance","$","256,421","","","$","388,640"],["Loans charged off","(28,746)","","","(51,351)"],["Recoveries of loans previously charged off","7,601","","","14,334"],["Net loans charged off","(21,145)","","","(37,017)"],["Provision for credit losses","428","","","(95,202)"],["Ending balance","$","235,704","","","$","256,421"],["Accrual for off-balance sheet credit risk from unfunded loan commitments:"],["Beginning balance","$","32,977","","","36,921"],["Provision for credit losses","27,942","","","(3,944)"],["Ending balance","$","60,919","","","$","32,977"],["Accrual for off-balance sheet credit risk associated with mortgage banking activities:"],["Beginning balance","$","3,382","","","$","4,282"],["Loans charged off","(105)","","","(179)"],["Provision for credit losses","1,627","","","(721)"],["Ending balance","$","4,904","","","$","3,382"],["Allowance for credit losses related to held-to-maturity (investment) securities:"],["Beginning balance","$","555","","","$","688"],["Provision for credit losses","3","","","(133)"],["Ending balance","$","558","","","$","555"],["Total provision for credit losses","$","30,000","","","$","(100,000)"],["Average loans by portfolio segment :"],["Commercial","$","13,393,796","","","$","13,304,596"],["Commercial real estate","4,345,783","","","4,075,831"],["Paycheck protection program","13,501","","","293,976"],["Loans to individuals","3,526,107","","","3,820,753"],["Net charge-offs (annualized) to average loans","0.10","%","","0.17","%"],["Net charge-offs (annualized) to average loans by portfolio segment:"],["Commercial","0.13","%","","0.25","%"],["Commercial real estate","\u2014","%","","0.04","%"],["Paycheck protection program","\u2014","%","","\u2014","%"],["Loans to individuals","0.10","%","","0.05","%"],["Recoveries to gross charge-offs","26.44","%","","27.91","%"],["Provision for loan losses (annualized) to average loans","\u2014","%","","(0.44)","%"],["Allowance for loan losses to loans outstanding at period-end","1.04","%","","1.27","%"],["Accrual for unfunded loan commitments to loan commitments","0.39","%","","0.26","%"],["Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end","1.31","%","","1.43","%"]]
[[/GREPCENT_TABLE]]

60

Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments

Expected credit losses on assets carried at amortized cost are recognized over their expected lives based on models that measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside, and upside macroeconomic variables such as real gross domestic product ("GDP") growth, civilian unemployment rate and West Texas Intermediate ("WTI") oil prices on a probability weighted basis. See Note 4 to the Consolidated Financial Statements for additional discussion of methodology of allowance for loan losses.

A $30.0 million provision for credit losses was recorded for the year ended December 31, 2022, primarily due to strong growth in loans and loan commitments, partially offset by improvement in credit quality metrics. The uncertainty in our economic forecast increased resulting in an increase in the probability weighting of the downside scenario. In addition, some key economic factors were less favorable to growth across all scenarios.

Non-pass grade loans, which include loans especially mentioned, accruing substandard and nonaccruing loans, decreased $135 million to $321 million at December 31, 2022. Non-pass grade loans were composed primarily of $98 million or 3% of commercial healthcare loans, $58 million or 2% of commercial services loans, $57 million or 2% of commercial general business loans, $31 million or 1% of energy loans and $24 million or 1% of commercial real estate loans. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements.

We recorded a $15.0 million provision for credit losses in the fourth quarter of 2022, primarily due to strong growth in loans and loan commitments. The level of uncertainty in the economic outlook remained high, and key economic factors in the base case were slightly less favorable to economic growth.

At December 31, 2022, the allowance for loan losses totaled $236 million or 1.04% of outstanding loans. Excluding residential mortgage loans guaranteed by U.S. government agencies, the allowance for loan losses was 221% of nonaccruing loans. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $297 million or 1.31% of outstanding loans and 278% of nonaccruing loans at December 31, 2022.

A $100.0 million negative provision for credit losses was recorded for the year ended December 31, 2021 primarily related to improvements in our reasonable and supportable forecasts of macroeconomic variables influenced by the anticipated impact of the COVID-19 pandemic developments. Throughout 2021, energy commodity prices strengthened and stabilized and the outlook of growth in GDP and the labor markets improved. Changes from credit quality metrics, primarily from changes in specific impairment, improving credit quality metrics and lower loan balances resulted in a decrease in the allowance for loan losses.

At December 31, 2021, the allowance for loan losses was $256 million or 1.27% of outstanding loans. Excluding loans guaranteed by U.S. government agencies, the allowance for loan losses was 213% of nonaccruing loans. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $289 million or 1.43% of outstanding loans and 241% of nonaccruing loans.

61

A summary of macroeconomic variables considered in developing our estimate of expected credit losses at December 31, 2022 follows:

[[GREPCENT_TABLE]]
[["","Base","Downside","Upside"],["Scenario probability weighting","50%","40%","10%"],["Economic outlook","The Russia-Ukraine conflict remains isolated.The Federal Reserve increases the federal funds rate twice in the first quarter of 2023, resulting in a target range of 4.75% to 5.00%. No additional rate increases in 2023 are anticipated. Inflation pressures cause modest declines in real household income compared to pre-pandemic levels, resulting in below-trend GDP growth. Job openings revert to more normalized levels, and overall hiring levels decline causing the national unemployment rate to modestly increase over the next four quarters.","The Russia-Ukraine conflict remains isolated. Higher levels of inflation force the Federal Reserve to adopt a more aggressive monetary policy as compared to the base case scenario. This results in a federal funds rate target range of 5.75% to 6.00% by December 2023. Inflation moderates slightly from the peak experienced in the third quarter of 2022, but remains elevated through the forecast horizon. The United States economy is pushed into a recession with a contraction in economic activity and a sharp increase in the unemployment rate.","The Russia-Ukraine conflict remains isolated. The Federal Reserve increases the federal funds rate once in the first quarter of 2023, resulting in a target range of 4.50% to 4.75%. No additional rate increases in 2023 are anticipated. Inflation continues to improve from the peak experienced in the third quarter of 2022. Labor force participants continue to re-enter the job market to help fill the elevated level of job openings. This increase in employment helps maintain real household income above its pre-pandemic trend. This, coupled with a drawdown in savings, supports consumer spending and produces GDP growth consistent with pre-pandemic levels."],["Macro-economic factors","\u2013GDP is forecasted to grow by 0.9% over the next 12 months.\u2013Civilian unemployment rate of 3.9% in the first quarter of 2023 increasing to 4.1% by the fourth quarter of 2023.\u2013WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of December 2022 and are expected to average $75.05 per barrel over the next 12 months.","\u2013GDP is forecasted to contract 1.3% over the next 12 months.\u2013Civilian unemployment rate of 4.8% in the first quarter of 2023 worsens to 6.0% by the fourth quarter of 2023.\u2013WTI oil prices are projected to average $65.87 per barrel over the next twelve months, peaking at $70.78 in the first quarter of 2023 and falling 15% over the following three quarters.","\u2013GDP is forecasted to grow by 1.6% over the next 12 months.\u2013Civilian unemployment rate of 3.7% in the first quarter of 2023 increases slightly to 3.8% by the fourth quarter of 2023.\u2013WTI oil prices are projected to average $83.58 per barrel over the next 12 months."]]
[[/GREPCENT_TABLE]]

Net Loans Charged Off

In 2022, net loans charged off totaled $21 million or 0.10%, down from $37 million or 0.17% of average loans in 2021.

In 2022, net charge-offs of commercial loans were $17.7 million, primarily related to a single services borrower in the fourth quarter. Net commercial real estate loan charge-offs were $92 thousand and net loan charge-offs of loans to individuals were $3.4 million. Net charge-offs of loans to individuals include deposit account overdraft losses.

62

Nonperforming Assets

As more fully described in Note 1 to the Consolidated Financial Statements, loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. Accruing renegotiated loans guaranteed by U.S. government agencies represent residential mortgage loans that have been modified in troubled debt restructurings. Interest continues to accrue based on the modified terms of the loan and loans may be sold once they become eligible according to U.S. government agency guidelines. Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at the lower of cost, as determined by fair value at the date of foreclosure, or current fair value, less estimated selling costs. A summary of nonperforming assets follows in Table 27:

Table 27 - Nonperforming Assets

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Nonaccruing loans:"],["Commercial"],["Energy","","$","1,399","","","$","31,091"],["Healthcare","","41,034","","","15,762"],["Services","","16,228","","","17,170"],["General business","","1,636","","","10,081"],["Total commercial","","60,297","","","74,104"],["Commercial real estate","","16,570","","","14,262"],["Paycheck protection program","","\u2014","","","\u2014"],["Loans to individuals"],["Residential mortgage","","29,791","","","31,574"],["Residential mortgage guaranteed by U.S. government agencies","","15,005","","","13,861"],["Personal","","134","","","258"],["Total loans to individuals","","44,930","","","45,693"],["Total nonaccruing loans","","121,797","","","134,059"],["Accruing renegotiated loans guaranteed by U.S. government agencies","","163,535","","","210,618"],["Real estate and other repossessed assets","","14,304","","","24,589"],["Total nonperforming assets","","$","299,636","","","$","369,266"],["Total nonperforming assets excluding those guaranteed by U.S. government agencies","","$","121,096","","","$","144,787"],["Allowance for loan losses to nonaccruing loans1","","220.71","%","","213.33","%"],["Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to nonaccruing loans1","","277.76","%","","240.77","%"],["Nonperforming assets to outstanding loans and repossessed assets","","1.33","%","","1.83","%"],["Nonperforming assets to outstanding loans and repossessed assets1","","0.54","%","","0.73","%"],["Nonaccruing loans to outstanding loans","","0.54","%","","0.66","%"],["Nonaccruing commercial loans to outstanding commercial loans","","0.42","%","","0.59","%"],["Nonaccruing commercial real estate loans to outstanding commercial real estate loans","","0.36","%","","0.37","%"],["Nonaccruing loans to individuals to outstanding loans to individuals1","","0.86","%","","0.98","%"],["Accruing loans 90 days or more past due1","","$","510","","","$","313"]]
[[/GREPCENT_TABLE]]

1     Excludes residential mortgages guaranteed by U.S. government agencies.

Excluding loans guaranteed by U.S. government agencies, nonperforming assets decreased $24 million compared to December 31, 2021, primarily due to a $30 million decrease in nonaccruing energy loans, a $10 million decrease in real estate and other repossessed assets and an $8.4 million decrease in nonaccruing general business loans. These decreases were partially offset by a $25 million increase in nonaccruing healthcare sector loans. Newly identified nonaccruing loans totaled $97 million, offset by $55 million in payments, $29 million of charge-offs, $13 million of loans returning to accrual status and $12 million in foreclosures. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

63

A rollforward of nonperforming assets for the years ended December 31, 2022 and December 31, 2021 follows in Table 28.

Table 28 – Rollforward of Nonperforming Assets

(In thousands)

[[GREPCENT_TABLE]]
[["","","Year Ended December 31, 2022"],["","","Nonaccruing Loans"],["","","Commercial","","Commercial Real Estate","","Loan to Individuals","","Total","","Renegotiated Loans","","Real Estate and Other Repossessed Assets","","Total Nonperforming Assets"],["Balance, December 31, 2021","","$","74,104","","","$","14,262","","","$","45,693","","","$","134,059","","","$","210,618","","","$","24,589","","","$","369,266"],["Additions","","58,822","","","20,683","","","17,372","","","96,877","","","38,644","","","\u2014","","","135,521"],["Payments","","(42,484)","","","(944)","","","(12,049)","","","(55,477)","","","(6,382)","","","\u2014","","","(61,859)"],["Charge-offs","","(22,382)","","","(269)","","","(6,095)","","","(28,746)","","","\u2014","","","\u2014","","","(28,746)"],["Net gains (losses) and write-downs","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(1,194)","","","(1,194)"],["Foreclosure of nonaccruing loans","","(7,960)","","","(3,956)","","","(410)","","","(12,326)","","","\u2014","","","12,326","","","\u2014"],["Foreclosure of loans guaranteed by U.S. government agencies","","\u2014","","","\u2014","","","(4,929)","","","(4,929)","","","(3,431)","","","\u2014","","","(8,360)"],["Proceeds from sales","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(71,520)","","","(21,417)","","","(92,937)"],["Net transfers to nonaccruing loans","","\u2014","","","\u2014","","","5,774","","","5,774","","","(5,774)","","","\u2014","","","\u2014"],["Return to accrual status","","197","","","(13,206)","","","(426)","","","(13,435)","","","\u2014","","","\u2014","","","(13,435)"],["Other, net","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,380","","","\u2014","","","1,380"],["Balance, December 31, 2022","","$","60,297","","","$","16,570","","","$","44,930","","","$","121,797","","","$","163,535","","","$","14,304","","","$","299,636"],["","","Year Ended December 31, 2021"],["","","Nonaccruing Loans"],["","","Commercial","","Commercial Real Estate","","Loan to Individuals","","Total","","Renegotiated Loans","","Real Estate and Other Repossessed Assets","","Total Nonperforming Assets"],["Balance, December 31, 2020","","$","167,159","","","$","27,246","","","$","40,288","","","$","234,693","","","$","151,775","","","$","90,526","","","$","476,994"],["Additions","","61,129","","","327","","","25,241","","","86,697","","","105,535","","","8,688","","","200,920"],["Net transfer from premises and equipment","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","217","","","217"],["Payments","","(102,717)","","","(10,537)","","","(17,443)","","","(130,697)","","","(3,948)","","","\u2014","","","(134,645)"],["Charge-offs","","(43,956)","","","(2,485)","","","(4,910)","","","(51,351)","","","\u2014","","","\u2014","","","(51,351)"],["Net gains (losses) and write-downs","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","13,842","","","13,842"],["Foreclosure of nonaccruing loans","","(7,511)","","","\u2014","","","(809)","","","(8,320)","","","\u2014","","","8,320","","","\u2014"],["Foreclosure of loans guaranteed by U.S. government agencies","","\u2014","","","\u2014","","","(2,435)","","","(2,435)","","","(866)","","","\u2014","","","(3,301)"],["Proceeds from sales","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","(37,322)","","","(97,004)","","","(134,326)"],["Net transfers to nonaccruing loans","","\u2014","","","\u2014","","","6,081","","","6,081","","","(6,081)","","","\u2014","","","\u2014"],["Return to accrual status","","\u2014","","","(289)","","","(320)","","","(609)","","","\u2014","","","\u2014","","","(609)"],["Other, net","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","1,525","","","\u2014","","","1,525"],["Balance, December 31, 2021","","$","74,104","","","$","14,262","","","$","45,693","","","$","134,059","","","$","210,618","","","$","24,589","","","$","369,266"]]
[[/GREPCENT_TABLE]]

64

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 and receivables collected once applicable criteria have been met. 

Real Estate and Other Repossessed Assets

Real estate and other repossessed assets totaled $14 million at December 31, 2022, composed primarily of $9.5 million of developed commercial real estate. Real estate and other repossessed assets decreased $10 million compared to December 31, 2021, primarily related to the sale of developed commercial real estate and oil and gas properties. 

Liquidity and Capital

BOK Financial has numerous material cash requirements in the normal course of business. These obligations include deposits and other borrowed funds, leased premises, commitments to extend credit to borrowers and to purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations. Additional information on loan commitments can be found in the "Loan Commitments" section of Management's Discussion and Analysis while the distribution of time deposit balances can be located in Note 8, "Deposits," and information related to Other Borrowings can be located in Note 9, "Other Borrowings."

Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks, provide adequate liquidity to meet our operating needs. Based on the average balances for 2022, approximately 80% of our funding was provided by deposit accounts, 6% from borrowed funds, less than 1% from long-term subordinated debt and 10% from equity. The loan to deposit ratio increased to 65% at December 31, 2022 from 49% at December 31, 2021, and continues to provide significant on-balance sheet liquidity to meet future loan demand and contractual obligations. BOK Financial, similar to the banking industry as a whole, saw deposits decline in 2022 as customers begin redeploying capital and moving to other off-balance sheet alternatives seeking higher yields in the rising interest rate environment. We are maintaining higher balances at the Federal Reserve to cover vital business obligations, to meet future asset growth opportunities and to stay nimble in a rising rate environment.

Subsidiary Bank

Deposits and borrowed funds are the primary sources of liquidity for the subsidiary bank. Deposit accounts represent our largest funding source. 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.

Table 29 - Average Deposits by Line of Business

(In thousands)

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["Commercial Banking","$","18,323,412","","","$","17,659,695"],["Consumer Banking","8,763,046","","","8,439,577"],["Wealth Management","8,491,377","","","9,426,771"],["Subtotal","35,577,835","","","35,526,043"],["Funds Management and other","2,273,446","","","2,394,934"],["Total","$","37,851,281","","","$","37,920,977"]]
[[/GREPCENT_TABLE]]

Average deposits for 2022 totaled $37.9 billion, a decrease of $70 million compared to the prior year, primarily driven by institutional clients moving to off-balance sheet alternatives seeking higher yields. Interest-bearing transaction deposit account balances decreased $1.1 billion while demand deposits increased $1.4 billion. Average time deposits also decreased $430 million.

65

Average deposits attributed to Commercial Banking were $18.3 billion for 2022, a $664 million or 4% increase over 2021. Demand deposit balances increased $984 million or 11%. Time deposit balances decreased $227 million or 43% while interest-bearing transaction account balances decreased $94 million or 1%. Commercial customers continued to retain large cash reserves, especially in the first half of the year, 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 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. We anticipate that commercial deposit balances may contract as short-term rates continue to move higher enhancing other investment alternatives for commercial customers.

Average Consumer Banking deposit balances increased $323 million or 4% over the prior year. Average interest-bearing transaction account balances increased $234 million or 6%. Average demand deposit account balances grew by $101 million or 3% while savings deposits increased $99 million or 12%. Time deposit balances decreased $110 million or 14%.

Average Wealth Management deposit balances decreased by $935 million or 10% compared to the prior year. Interest-bearing transaction balances decreased $1.1 billion or 14%. Non-interest-bearing demand deposits increased $234 million or 17% and time deposit balances decreased $110 million or 19%.

Brokered deposits included in time deposits averaged $51 million for 2022 compared to $62 million for 2021. Brokered deposits included in time deposits totaled $42 million at December 31, 2022 and $49 million at December 31, 2021.

Average interest-bearing transaction accounts for 2022 included $1.9 billion of brokered deposits compared to $2.1 billion for 2021. Brokered deposits included in interest-bearing transaction accounts totaled $1.5 billion at December 31, 2022 and $2.1 billion at December 31, 2021.

66

The distribution of our period end deposit account balances among principal markets follows in Table 30.

Table 30 - Period End Deposits by Principal Market Area

(In thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Oklahoma:"],["Demand","","$","4,585,963","","","$","5,433,405"],["Interest-bearing:"],["Transaction","","9,475,528","","","12,689,367"],["Savings","","555,407","","","521,439"],["Time","","794,002","","","978,822"],["Total interest-bearing","","10,824,937","","","14,189,628"],["Total Oklahoma","","15,410,900","","","19,623,033"],["Texas:"],["Demand","","3,873,759","","","4,552,983"],["Interest-bearing:"],["Transaction","","4,878,482","","","5,345,461"],["Savings","","178,356","","","178,458"],["Time","","356,538","","","337,559"],["Total interest-bearing","","5,413,376","","","5,861,478"],["Total Texas","","9,287,135","","","10,414,461"],["Colorado:"],["Demand","","2,462,891","","","2,526,855"],["Interest-bearing:"],["Transaction","","2,123,218","","","2,334,371"],["Savings","","77,961","","","78,636"],["Time","","135,043","","","174,351"],["Total interest-bearing","","2,336,222","","","2,587,358"],["Total Colorado","","4,799,113","","","5,114,213"],["New Mexico:"],["Demand","","1,141,958","","","1,196,057"],["Interest-bearing:"],["Transaction","","691,915","","","858,394"],["Savings","","112,430","","","107,963"],["Time","","133,625","","","163,871"],["Total interest-bearing","","937,970","","","1,130,228"],["Total New Mexico","","2,079,928","","","2,326,285"]]
[[/GREPCENT_TABLE]]

67

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Arizona:"],["Demand","","844,327","","","934,282"],["Interest-bearing:"],["Transaction","","739,628","","","834,491"],["Savings","","16,496","","","16,182"],["Time","","24,846","","","31,274"],["Total interest-bearing","","780,970","","","881,947"],["Total Arizona","","1,625,297","","","1,816,229"],["Kansas/Missouri:"],["Demand","","436,259","","","658,342"],["Interest-bearing:"],["Transaction","","694,163","","","1,086,946"],["Savings","","20,678","","","18,844"],["Time","","12,963","","","12,255"],["Total interest-bearing","","727,804","","","1,118,045"],["Total Kansas/Missouri","","1,164,063","","","1,776,387"],["Arkansas:"],["Demand","","50,180","","","42,499"],["Interest-bearing:"],["Transaction","","56,181","","","119,543"],["Savings","","3,083","","","3,213"],["Time","","4,825","","","6,196"],["Total interest-bearing","","64,089","","","128,952"],["Total Arkansas","","114,269","","","171,451"],["Total BOK Financial deposits","","$","34,480,705","","","$","41,242,059"]]
[[/GREPCENT_TABLE]]

Estimated uninsured deposits totaled $21.3 billion at December 31, 2022 and $27.1 billion at December 31, 2021. The portion of time deposits in excess of the FDIC limit, as applied without regard to other deposit balances held by the depositor, were $373 million at December 31, 2022.

In addition to deposits, liquidity for the subsidiary bank is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers’ banks and Federal Home Loan Banks from across the country. The Company had no wholesale federal funds purchased at December 31, 2022 or December 31, 2021. Securities repurchase agreements generally mature within 90 days and are secured by certain trading or available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and 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 $1.6 billion during 2022 and $1.7 billion during 2021.

At December 31, 2022, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $12.5 billion.

68

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.

See Note 9 to the Consolidated Financial Statements for a summary of other borrowings.

Parent Company and Other Non-Bank Subsidiaries

The primary sources of liquidity for BOK Financial are cash on hand and dividends from the subsidiary bank. Cash and cash equivalents totaled $165 million at December 31, 2022. Dividends from the subsidiary 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 December 31, 2022, based on the most restrictive limitations as well as management’s internal capital policy, BOKF, NA could declare up to $227 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 could also affect its ability to pay dividends to the parent company.

As a result of the acquisition of CoBiz Financial, we obtained $60 million of subordinated debt issued in June 2015 that will mature on June 25, 2030. This debt bears interest at the rate of 5.625% through June 25, 2025 and thereafter, the notes will bear an annual floating rate equal to 3-month LIBOR plus 317 basis points. We also acquired $72 million of junior subordinated debentures. Interest is based on spreads over 3-month LIBOR ranging from 145 basis points to 295 basis points and mature September 17, 2033 through September 30, 2035. The junior subordinated debentures are subject to early redemption prior to maturity. These LIBOR-based subordinated debentures will be subject to transition on July 1, 2023 in conjunction with the Adjustable Interest Rate (LIBOR) Act as implemented by the Board of Governors of the Federal Reserve System.

Shareholders' equity at December 31, 2022 was $4.7 billion, a decrease of $681 million compared to December 31, 2021. Net income less cash dividends paid increased equity $376 million during 2022. Changes in interest rates resulted in an accumulated other comprehensive loss of $837 million at December 31, 2022, compared to accumulated comprehensive income of $72 million at December 31, 2021. We also repurchased $155 million of common shares during 2022. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends.

On November 1, 2022, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock, subject to market conditions, securities laws and other regulatory compliance limitations. This authorization replaces the existing board authorization for the purchase of five million commons shares, under which 4,651,465 shares were repurchased. As of December 31, 2022, the Company had repurchased 314,406 shares under this new authorization. The Company repurchased 1,632,401 shares during 2022 at an average price of $94.88 per share. We view share buybacks opportunistically, but within the context of maintaining our strong capital position.

BOK Financial and the subsidiary bank are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements, including a capital conservation buffer, can result in certain mandatory and additional discretionary actions by regulators that could have a material impact on operations including restrictions on capital distributions from dividends and share repurchases and executive bonus payments. 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 follows for BOK Financial on a consolidated basis in Table 31.

69

Table 31 – Capital Ratios

[[GREPCENT_TABLE]]
[["","Minimum Capital Requirement","","Capital Conservation Buffer","","Minimum Capital Requirement Including Capital Conservation Buffer"],["","","","","December 31,"],["","","","2022","","2021"],["Risk-based capital:"],["Common equity Tier 1","4.50","%","","2.50","%","","7.00","%","","11.69","%","","12.24","%"],["Tier 1 capital","6.00","%","","2.50","%","","8.50","%","","11.71","%","","12.25","%"],["Total capital","8.00","%","","2.50","%","","10.50","%","","12.67","%","","13.29","%"],["Tier 1 Leverage","4.00","%","","N/A","","4.00","%","","9.91","%","","8.55","%"],["Average total equity to average assets","","","","","","","10.24","%","","10.68","%"],["Tangible common equity ratio","","","","","","","7.63","%","","8.61","%"]]
[[/GREPCENT_TABLE]]

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 elected to delay the regulatory capital impact of the transition in accordance with the interim final rule. Deferral of the impact of CECL added 8 basis points to the Company's Common equity Tier 1 capital at December 31, 2022.

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"), including unrealized gains and losses on available for sale securities, 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.

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Non-GAAP Measures

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

Table 32 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

Table 32 – Non-GAAP Measures

(Dollars in thousands)

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","2021"],["Tangible common equity ratio:"],["Total shareholders' equity","","$","4,682,649","","","$","5,363,732"],["Less: Goodwill and intangible assets, net","","1,120,880","","","1,136,527"],["Tangible common equity","","3,561,769","","","4,227,205"],["Total assets","","47,790,642","","","50,249,431"],["Less: Goodwill and intangible assets, net","","1,120,880","","","1,136,527"],["Tangible assets","","$","46,669,762","","","$","49,112,904"],["Tangible common equity ratio","","7.63","%","","8.61","%"],["Pre-provision net revenue:"],["Net income before taxes","","$","660,157","","","$","796,100"],["Add: Provision for expected credit losses","","30,000","","","(100,000)"],["Less: Net income (loss) attributable to non-controlling interests","","20","","","(1,796)"],["Pre-provision net revenue","","$","690,137","","","$","697,896"]]
[[/GREPCENT_TABLE]]

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

Off-Balance Sheet Arrangements

See Note 14 to the Consolidated Financial Statements for a discussion of the Company’s significant off-balance sheet commitments.

Recently Issued Accounting Standards

See Note 1 of the Consolidated Financial Statements for disclosure of newly adopted and pending accounting standards.

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Forward-Looking Statements

This 10-K contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial, the financial services industry, the economy generally and the expected or potential impact of the COVID-19 pandemic, and the related responses of the government, consumers, and others, on our business, financial condition and results of operations. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "plans," "projects," "will," "intends," variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that acquisitions and growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These various forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in government, consumer or business responses to, and ability to treat or prevent further outbreak of the COVID-19 pandemic, commodity prices, interest rates and interest rate relationships, inflation, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

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

Legal Notice

As used in this report, the term "BOK Financial" and such terms as "the Company," "the Corporation," "our," "we" and "us" may refer to one or more of the consolidated subsidiaries or all of them taken as a whole. All these terms are used for convenience only and are not intended as a precise description of any of the separate companies, each of which manages its own affairs.

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