bokf-20230630

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Part I. Financial Information
Management's Discussion and Analysis (Item 2)			1
Market Risk (Item 3)			39
Controls and Procedures (Item 4)			44
Consolidated Financial Statements – Unaudited (Item 1)			45
Six Month Financial Summary – Unaudited (Item 2)			95
Quarterly Financial Summary – Unaudited (Item 2)			96
Quarterly Earnings Trend – Unaudited			99

Part II. Other Information
Item 1. Legal Proceedings			100
Item 1A. Risk Factors			100
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			100
Item 5. Other Information			100
Item 6. Exhibits			101
Signatures			102

BOK Financial Corporation ("the Company") reported net income of $151.3 million or $2.27 per diluted share for the second quarter of 2023 compared to $162.4 million or $2.43 per diluted share for the first quarter of 2023. Pre-provision net revenue ("PPNR"), a non-GAAP measure, decreased $12.0 million to $212.3 million compared to the first quarter of 2023.

•Net interest revenue totaled $322.3 million, a decrease of $30.1 million compared to the prior quarter. Net interest margin was 3.00 percent for the second quarter of 2023 compared to 3.45 percent for the prior quarter. Growth in low-spread trading assets drove a 9 basis point decline in net interest margin with deposit repricing activity primarily driving the remaining 36 basis point reduction.

•Fees and commissions revenue totaled $200.5 million, an increase of $14.5 million. Brokerage and trading revenue increased $12.6 million, largely driven by higher U.S. government agency mortgage-backed securities and related derivative contracts trading volumes, while fiduciary and asset management revenue grew $2.3 million.

•Other operating expense totaled $318.7 million, an increase of $12.9 million. Personnel expense increased $8.5 million. Growth in regular compensation related to our annual merit increases and higher cash-based incentive compensation reflecting sales activity was partially offset by lower seasonal employee benefits costs. Non-personnel expense increased $4.4 million, led by higher seasonal mortgage banking costs.

•We recorded a $17.0 million provision for expected credit losses in the second quarter of 2023, primarily related to higher assumed commercial real estate vacancy rates during the forecast period and overall loan portfolio growth during the quarter. We recorded a $16.0 million provision for expected credit losses in the first quarter of 2023, as key economic factors in the base case, including projected West Texas Intermediate ("WTI") oil prices and commercial real estate vacancy rates, were less favorable to economic growth. The combined allowance for credit losses totaled $323 million or 1.39 percent of outstanding loans at June 30, 2023. The combined allowance for credit losses was $312 million or 1.37 percent of outstanding loans at March 31, 2023.

•Nonperforming assets not guaranteed by U.S. government agencies increased $6.4 million compared to March 31, 2023. Potential problem loans decreased $28 million while other loans especially mentioned fell $17 million. Net charge-offs were $6.7 million or 0.12 percent of average loans on an annualized basis for the second quarter of 2023. Net charge-offs were 0.10 percent of average loans over the last four quarters. Net charge-offs were $769 thousand or 0.01 percent of average loans on an annualized basis for the first quarter of 2023.

•Period-end deposits were $33.3 billion at June 30, 2023, a $714 million increase over March 31, 2023. Average deposits decreased $1.1 billion, including a $1.4 billion reduction in demand deposit balances and a $295 million increase in average interest-bearing deposits. The loan to deposit ratio was 70 percent at June 30, 2023, consistent with March 31, 2023.

•The Company's tangible common equity ratio, a non-GAAP measure, was 7.79 percent at June 30, 2023 and 8.46 percent at March 31, 2023. The tangible common equity ratio is primarily based on total shareholders' equity, which includes unrealized gains and losses on available for sale securities. Adjusted for all securities portfolio losses, including the tax adjusted losses in the investment portfolio, the tangible common equity ratio would be 7.49 percent at June 30, 2023 and 8.22 percent at March 31, 2023.

•The common equity Tier 1 capital ratio at June 30, 2023 was 12.13 percent. Other regulatory capital ratios include the Tier 1 capital ratio at 12.13 percent, total capital ratio at 13.24 percent, and leverage ratio at 9.75 percent. At March 31, 2023, the common equity Tier 1 capital ratio was 12.19 percent, the Tier 1 capital ratio was 12.20 percent, total capital ratio was 13.21 percent, and leverage ratio was 9.94 percent.

•The Company repurchased 266,000 shares of common stock at an average price of $84.08 per share in the second quarter of 2023 and 447,071 shares at an average price of $98.64 in the first quarter of 2023. We view share buybacks opportunistically, but within the context of maintaining our strong capital position.

•The Company paid a regular cash dividend of $35.9 million or $0.54 per common share during the second quarter of 2023. On August 1, 2023, the board of directors approved a quarterly cash dividend of $0.54 per common share payable on or about August 30, 2023 to shareholders of record as of August 15, 2023.

•Tax-equivalent net interest revenue totaled $679.1 million for the six months ended June 30, 2023 and $546.4 million for the six months ended June 30, 2022. Net interest revenue increased $163.6 million from changes in interest rates and decreased $31.0 million from changes in earning assets. Net interest margin was 3.22 percent compared to 2.60 percent. In response to rising inflation, the Federal Reserve increased the federal funds rate 500 basis points since the beginning of 2022. The resulting impact on market interest rates increased net interest margin as our earning assets, led by our significant percentage of variable-rate commercial loans, repriced at a higher rate and faster pace than our interest-bearing liabilities. Loan yields increased 310 basis points and funding costs increased 261 basis points. Average earning assets increased $491 million to $41.8 billion with higher average loans and investment securities balances, partially offset by lower trading securities and available for sale securities balances. In the second quarter of 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. Other borrowed funds increased $4.8 billion while total interest-bearing deposits decreased $3.1 billion.

•Fees and commissions revenue totaled $386.5 million for the six months ended June 30, 2023, a $115.5 million increase over the six months ended June 30, 2022. Brokerage and trading revenue increased $100.4 million, primarily due to disruptions in the fixed income markets related to economic uncertainty in the first part of 2022. Fiduciary and asset management revenue increased $7.4 million, led by growth in mutual fund fees and Cavanal Hill fund fees. Other revenue increased $8.1 million, primarily related to higher margin interest fees.

•Total operating expense was $624.5 million for the six months ended June 30, 2023, an increase of $73.2 million compared to the six months ended June 30, 2022. Personnel expense increased $58.6 million. Regular compensation increased $19.5 million, largely related to annual merit increases and salary adjustments, while cash-based incentive compensation grew $16.1 million due to higher sales activity. Share-based compensation expense increased $7.1 million reflecting changes in assumptions of certain performance-based equity awards. Non-personnel expense increased $14.6 million to $251.7 million, largely related to higher data processing costs related to on-going technology projects and FDIC insurance costs following increased assessment rates in 2023.

•We recorded a $33.0 million provision for expected credit losses in the six months ended June 30, 2023, primarily due to key economic factors, including projected commercial real estate vacancy rates and projected West Texas Intermediate ("WTI") oil prices being less favorable to economic growth and growth in the loan portfolio. No provision for expected credit losses was necessary for the six months ended June 30, 2022.

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 $324.5 million for the second quarter of 2023, compared to $354.6 million for the prior quarter. Compared to the first quarter of 2023, net interest revenue decreased $24.4 million from changes in interest rates and $5.8 million from changes in earning assets. Table 1 shows the effect on net interest revenue from changes in average balances and interest rates for various types of earning assets and interest-bearing liabilities.

Average earning assets increased $2.0 billion compared to the first quarter of 2023. The average balance of trading securities increased $1.2 billion due to favorable market opportunities. Average loan balances increased $413 million, largely due to growth in commercial and commercial real estate loans. The average balance of available for sale securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government agencies, increased $295 million. Average interest-bearing cash and cash equivalents grew $92 million.

Total average deposits declined by $1.1 billion compared to the first quarter of 2023, including a $1.4 billion decrease in demand deposits, partially offset by a $295 million increase in interest-bearing deposits. Funds purchased and repurchase agreements grew $1.9 billion while other borrowings increased $763 million.

Net interest margin was 3.00 percent compared to 3.45 percent in the first quarter of 2023. Growth in our trading assets drove a 9 basis point decline in net interest margin with deposit repricing activity primarily driving the remaining 36 basis point reduction. In recent prior quarters, the rapid pace of market interest rate increases grew net interest margin as our earning assets, led by our significant percentage of variable-rate loans, repriced at a higher rate and faster pace than our interest-bearing liabilities. In the past two quarters, deposit price competition and liability mix shift have driven compression in the net interest margin. The tax-equivalent yield on earning assets was 5.29 percent, an increase of 23 basis points. Loan yields grew 36 basis points to 7.03 percent. The available for sale securities portfolio yield increased 13 basis points to 3.00 percent. The yield on interest-bearing cash and cash equivalents increased 113 basis points to 5.41 percent.

Funding costs were 3.27 percent, an 84 basis point increase over the prior quarter. The cost of interest-bearing deposits increased 73 basis points to 2.56 percent. The cost of funds purchased and repurchase agreements increased 125 basis points to 4.58 percent while the cost of other borrowings increased 39 basis points to 5.12 percent. The benefit to net interest margin from assets funded by non-interest liabilities was 98 basis points, an increase of 16 basis points.

Our overall objective is to manage the Company's balance sheet for changes in interest rates as is further described in the Market Risk section of this report. Approximately 80 percent of our commercial and commercial real estate loan portfolios are either variable rate or fixed rate that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing, or that reprice more slowly than the loans. The result is a balance sheet that is asset sensitive, which means that assets generally reprice more quickly than the 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.


	Three Months Ended June 30, 2023 / Mar. 31, 2023						Six Months Ended June 30, 2023 / 2022
			Change Due To1						Change Due To1
	Change		Volume		Yield/Rate		Change		Volume		Yield/Rate
Tax-equivalent interest revenue:
Interest-bearing cash and cash equivalents	$	3,046	$	1,145	$	1,901	$	13,848	$	(3,779)	$	17,627
Trading securities	13,809		13,991		(182)		17,905		(54,033)		71,938
Investment securities	(358)		(277)		(81)		11,616		21,608		(9,992)
Available for sale securities	5,737		1,795		3,942		67,061		(4,870)		71,931
Fair value option securities	(777)		(705)		(72)		6,081		4,155		1,926
Restricted equity securities	621		635		(14)		9,746		4,376		5,370
Residential mortgage loans held for sale	113		103		10		(882)		(2,159)		1,277
Loans	31,362		9,027		22,335		384,847		50,704		334,143
Total tax-equivalent interest revenue	53,553		25,714		27,839		510,222		16,002		494,220
Interest expense:
Transaction deposits	31,336		(1,011)		32,347		190,411		(20,606)		211,017
Savings deposits	242		(14)		256		589		(18)		607
Time deposits	9,814		3,930		5,884		19,480		2,446		17,034
Funds purchased and repurchase agreements	27,455		18,922		8,533		50,049		13,645		36,404
Other borrowings	14,728		9,669		5,059		115,528		51,496		64,032
Subordinated debentures	150		11		139		1,513		(2)		1,515
Total interest expense	83,725		31,507		52,218		377,570		46,961		330,609
Tax-equivalent net interest revenue	(30,172)		(5,793)		(24,379)		132,652		(30,959)		163,611
Change in tax-equivalent adjustment	(85)						472
Net interest revenue	$	(30,087)					$	132,180

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


	Three Months Ended				Increase (Decrease)		% Increase (Decrease)				Six Months Ended				Increase (Decrease)		% Increase (Decrease)
	June 30, 2023		Mar. 31, 2023						June 30, 2023	June 30, 2022
Brokerage and trading revenue	$	65,006	$	52,396	$	12,610	24	%			$	117,402	$	16,964	$	100,438	592	%
Transaction card revenue	26,003		25,621		382		1	%			51,624		51,156		468		1	%
Fiduciary and asset management revenue	52,997		50,657		2,340		5	%			103,654		96,237		7,417		8	%
Deposit service charges and fees	27,100		25,968		1,132		4	%			53,068		55,504		(2,436)		(4)	%
Mortgage banking revenue	15,141		14,367		774		5	%			29,508		28,018		1,490		5	%
Other revenue	14,250		16,970		(2,720)		(16)	%			31,220		23,129		8,091		35	%
Total fees and commissions revenue	200,497		185,979		14,518		8	%			386,476		271,008		115,468		43	%
Other gains (losses), net	12,618		2,251		10,367		N/A				14,869		(9,283)		24,152		N/A
Loss on derivatives, net	(8,159)		(1,344)		(6,815)		N/A				(9,503)		(60,550)		51,047		N/A
Loss on fair value option securities, net	(2,158)		(2,962)		804		N/A				(5,120)		(13,422)		8,302		N/A
Change in fair value of mortgage servicing rights	9,261		(6,059)		15,320		N/A				3,202		66,595		(63,393)		N/A
Gain (loss) on available for sale securities, net	(3,010)		—		(3,010)		N/A				(3,010)		2,125		(5,135)		N/A



Total other operating revenue	$	209,049	$	177,865	$	31,184	18	%			$	386,914	$	256,473	$	130,441	51	%

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 38 percent of total revenue for the second quarter of 2023, excluding provision for credit losses and gains and losses on other assets, securities and derivatives and the change in the fair value of mortgage servicing rights. We believe that a variety of fee revenue sources provides diversification to changes resulting from market or economic conditions such as interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. Many of the 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 affect 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. 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, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Trading revenue includes net realized and unrealized gains and losses primarily related to 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 $36.9 million, a $9.3 million increase over the prior quarter, largely due to a higher volume of U.S. agency residential mortgage-backed securities and related derivative contracts trading volumes.

Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Risk Management Programs in Note 3 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Customer hedging revenue totaled $13.6 million, an increase of $5.3 million, driven by energy customer activity. 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 $8.3 million for the second quarter of 2023, a decrease of $1.0 million compared to the first quarter of 2023, primarily related to the timing and volume of transactions. A reduction in syndication activity was partially offset by higher underwriting fees.

Transaction card revenue includes revenues from processing transactions on behalf of members of our TransFund electronic fund transfer network, merchant services fees paid by customers for account management and electronic processing of card transactions and interchange fees from our corporate card program. Transaction card revenue totaled $26.0 million for the second quarter of 2023, relatively consistent with the prior quarter.

Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Fiduciary and asset management revenue is largely based on the fair value of assets. Rates applied to asset values vary based on the nature of the relationship. Fiduciary relationships and managed asset relationships generally have higher fee rates than non-fiduciary and/or managed relationships. Fiduciary and asset management revenue grew $2.3 million over the first quarter of 2023, led by higher seasonal tax preparation fee income.


	Three Months Ended
	June 30, 2023						March 31, 2023
	Balance1		Revenue2		Margin3		Balance1		Revenue2		Margin3
Managed fiduciary assets:
Personal	$	10,687,370	$	26,741	1.00	%	$	10,609,920	$	24,839	0.94	%
Institutional	18,705,828		9,103		0.19	%	18,683,598		9,223		0.20	%
Total managed fiduciary assets	29,393,198		35,844		0.49	%	29,293,518		34,062		0.47	%

Non-managed assets:
Fiduciary	28,480,670		14,300		0.20	%	28,164,407		13,785		0.20	%
Non-fiduciary	20,910,245		2,853		0.05	%	19,830,593		2,810		0.06	%
Safekeeping and brokerage assets under administration	24,834,827		—		—	%	25,021,601		—		—	%
Total non-managed assets	74,225,742		17,153		0.09	%	73,016,601		16,595		0.09	%

Total assets under management or administration	$	103,618,940	$	52,997	0.20	%	$	102,310,119	$	50,657	0.20	%


	Six Months Ended
	June 30, 2023						June 30, 2022
	Balance1		Revenue2		Margin3		Balance1		Revenue2		Margin3
Managed fiduciary assets:
Personal	$	10,687,370	$	51,580	0.97	%	$	10,403,398	$	55,720	1.07	%
Institutional	18,705,828		18,326		0.20	%	16,895,773		17,208		0.20	%
Total managed fiduciary assets	29,393,198		69,906		0.48	%	27,299,171		72,928		0.53	%

Non-managed assets:
Fiduciary	28,480,670		28,085		0.20	%	28,673,413		17,791		0.12	%
Non-fiduciary	20,910,245		5,663		0.05	%	18,582,670		5,518		0.06	%
Safekeeping and brokerage assets under administration	24,834,827		—		—	%	21,426,035		—		—	%
Total non-managed assets	74,225,742		33,748		0.09	%	68,682,118		23,309		0.07	%

Total assets under management or administration	$	103,618,940	$	103,654	0.20	%	$	95,981,289	$	96,237	0.20	%

1 Assets under management or administration balance excludes certain assets under custody held by a sub-custodian where minimal revenue is recognized. $19 billion, $18 billion, and $22 billion of such assets are excluded from assets under management or administration for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning balance	$	102,310,119	$	101,081,355	$	99,735,040	$	104,917,721
Net inflows (outflows)	(288,434)		(508,292)		(805,352)		(2,282,348)

Net change in fair value	1,597,255		(4,591,774)		4,689,252		(6,654,084)
Ending balance	$	103,618,940	$	95,981,289	$	103,618,940	$	95,981,289

Deposit service charges and fees increased $1.1 million over the first quarter of 2023, primarily due to commercial customers holding lower compensating non-interest deposit balances to cover fees. Overdraft and non-sufficient funds fees earned primarily on consumer deposit accounts totaled $5.1 million, largely unchanged compared to the prior quarter.

Mortgage banking revenue was relatively consistent with the first quarter of 2023. Mortgage production volume increased $33 million to $198 million. Production revenue as a percentage of production volume, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, increased 24 basis points to (0.14) percent.


	Three Months Ended						Increase (Decrease)			% Increase (Decrease)				Six Months Ended						Increase (Decrease)			% Increase (Decrease)
	June 30, 2023			Mar. 31, 2023								June 30, 2023	June 30, 2022
Mortgage production revenue	$	(284)		$	(633)		$	349		55	%			$	(917)		$	4,551		$	(5,468)		(120)	%

Mortgage loans funded for sale	$	214,785		$	138,624									$	353,409		$	779,103
Add: Current period end outstanding commitments	55,031			71,693										55,031			106,004
Less: Prior period end outstanding commitments	71,693			45,492										45,492			171,412
Total mortgage production volume	$	198,123		$	164,825		$	33,298		20	%			$	362,948		$	713,695		$	(350,747)		(49)	%

Mortgage loan refinances to mortgage loans funded for sale	8		%	9		%	(100)		bps					—		%	32		%	(3,200)		bps
Realized margin on funded mortgage loans	(0.14)		%	(1.25)		%	111		bps					(0.57)		%	1.29		%	(186)		bps
Production revenue as a percentage of production volume	(0.14)		%	(0.38)		%	24		bps					(0.25)		%	0.64		%	(89)		bps
Primary mortgage interest rates:
Average	6.56		%	6.33		%	23		bps					6.45		%	4.54		%	191		bps
Period end	6.70		%	6.24		%	46		bps					6.70		%	5.70		%	100		bps

Mortgage servicing revenue	$	15,425		$	15,000		$	425		3	%			$	30,425		$	23,467		$	6,958		30	%
Average outstanding principal balance of mortgage loans serviced for others	20,807,044			21,121,319			(314,275)			(1)	%			20,964,181			16,745,962			$	4,218,219		25	%

Average mortgage servicing revenue rates	0.30		%	0.29		%	1		bp					0.29		%	0.28		%	1		bp


Oklahoma		73-1373454
(State or other jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

Bank of Oklahoma Tower
Boston Avenue at Second Street
Tulsa,	Oklahoma	74192
(Address of Principal Executive Offices)		(Zip Code)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934