(3) Derivatives

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2012 (in thousands):

	Gross Basis								Net Basis²
	Assets				Liabilities				Assets			Liabilities
	Notional¹		Fair Value		Notional¹		Fair Value		Fair Value			Fair Value
Customer risk management programs:
Interest rate contracts3	$	12,433,054	$	117,633	$	12,142,598	$	115,118	$	90,163		$	87,648
Energy contracts		1,846,932		180,548		1,899,205		187,991		91,363			98,806
Agricultural contracts		116,575		5,664		122,979		5,597		1,060			993
Foreign exchange contracts		190,306		190,306		189,926		189,926		190,306			189,926
Equity options		217,169		18,244		217,169		18,244		18,244			18,244
Total customer derivative before cash collateral		14,804,036		512,395		14,571,877		516,876		391,136			395,617
Less: cash collateral		–		–		–		–		(11,860	)		(91,362	)
Total customer derivatives		14,804,036		512,395		14,571,877		516,876		379,276			304,255

Interest rate risk management programs		69,000		5,720		72,000		1,035		5,720			1,035
Total derivative contracts	$	14,873,036	$	518,115	$	14,643,877	$	517,911	$	384,996		$	305,290

¹	Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

²	Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.

3	Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage banking customers to hedge their loan production.

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

Derivative contracts may also require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. As of March 31, 2012, a decrease in credit rating from A1 to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $42 million.

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2011 (in thousands):

	Gross Basis								Net Basis²
	Assets				Liabilities				Assets			Liabilities
	Notional¹		Fair Value		Notional¹		Fair Value		Fair Value			Fair Value
Customer risk management programs:
Interest rate contracts3	$	10,391,244	$	182,450	$	10,324,244	$	181,102	$	149,780		$	148,432
Energy contracts		1,554,400		158,625		1,799,367		171,050		62,945			75,370
Agricultural contracts		146,252		4,761		148,924		4,680		782			701
Foreign exchange contracts		73,153		73,153		72,928		72,928		73,153			72,928
Equity options		208,647		12,508		208,647		12,508		12,508			12,508
Total customer derivatives before cash collateral		12,373,696		431,497		12,554,110		442,268		299,168			309,939
Less: cash collateral		–		–		–		–		(11,690	)		(73,712	)
Total customer derivatives		12,373,696		431,497		12,554,110		442,268		287,478			236,227

Interest rate risk management programs		44,000		6,381		25,000		295		6,381			295
Total derivative contracts	$	12,417,696	$	437,878	$	12,579,110	$	442,563	$	293,859		$	236,522

¹	Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

²	Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.

3	Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage banking customers to hedge their loan production.

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at March 31, 2011 (in thousands):

	Gross Basis								Net Basis²
	Assets				Liabilities				Assets			Liabilities
	Notional¹		Fair Value		Notional¹		Fair Value		Fair Value			Fair Value
Customer risk management programs:
Interest rate contracts	$	9,774,337	$	124,120	$	9,526,697	$	124,651	$	74,003		$	74,534
Energy contracts		2,052,150		220,170		2,199,841		220,021		108,841			108,692
Agricultural contracts		157,611		13,510		168,439		13,428		9,355			9,273
Foreign exchange contracts		57,222		57,222		57,222		57,222		57,222			57,222
Equity options		166,409		18,464		166,409		18,464		18,464			18,464
Total customer derivative before cash collateral		12,207,729		433,486		12,118,608		433,786		267,885			268,185
Less: cash collateral		–		–		–		–		(23,749	)		(112,148	)
Total customer derivatives		12,207,729		433,486		12,118,608		433,786		244,136			156,037

Interest rate risk management programs		44,000		988		144		1		988			1
Total derivative contracts	$	12,251,729	$	434,474	$	12,118,752	$	433,787	$	245,124		$	156,038

¹	Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

²	Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.

3	Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage banking customers to hedge their loan production.

The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):

	Three Months Ended March 31, 2012					Three Months Ended March 31, 2011
	Brokerage and Trading Revenue		Gain (Loss) on Derivatives, Net			Brokerage and Trading Revenue			Gain (Loss) on Derivatives, Net
Customer Risk Management Programs:
Interest rate contracts	$	2,034	$	–		$	(2,536	)	$	–
Energy contracts		2,310		–			3,487			–
Agricultural contracts		91		–			68			–
Foreign exchange contracts		206		–			108			–
Equity options		–		–			–			–
Total Customer Derivatives		4,641		–			1,127			–

Interest Rate Risk Management Programs		–		(2,473	)		–			(2,573	)
Total Derivative Contracts	$	4,641	$	(2,473	)	$	1,127		$	(2,573	)

Customer Risk Management Programs

BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, interest rates and foreign exchange rates, or to take positions in derivative contracts. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize its risk of changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in other operating revenue – brokerage and trading revenue in the Consolidated Statements of Earnings.

Interest Rate Risk Management Programs

BOK Financial may use interest rate swaps in managing its interest rate sensitivity and as part of its economic hedge of the change in the fair value of mortgage servicing rights. Interest rate swaps are generally used to reduce overall asset sensitivity by converting specific fixed rate liabilities to floating rate based on LIBOR. Net interest revenue was not significantly impacted by the settlement of amounts receivable or payable on interest rate swaps for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, BOK Financial had interest rate swaps with a notional value of $66 million used as part of the economic hedge of the change in the fair value of the mortgage servicing rights.

As discussed in Note 5, certain derivative contracts not designated as hedging instruments related to mortgage loan commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance Sheets. See Note 5, for additional discussion of notional, fair value and impact on earnings of these contracts.

None of these derivative contracts have been designated as hedging instruments.